China Cuts Taxes for Low Earners Amid High Inflation
BEIJING—China's legislature approved Thursday a measure to increase the threshold at which workers must pay income taxes to 3,500 yuan ($540) per month from 2,000 yuan ($308) per month, part of efforts to address low-income earners' concerns about inflation and help ensure social stability.
The new threshold, effective from Sept. 1, is 500 yuan higher than the 3,000-yuan level the government had proposed earlier, which the public criticized as being too low.
The new threshold is higher than China's average wage last year of 3,096 yuan per month in the nonprivate sector and 1,730 yuan per month in the urban private sector, according to National Bureau of Statistics data. Under the bureau's definition, private-sector companies include only small companies. Listed companies and foreign-invested companies, including those under private ownership, come under the "non-private sector" category, which includes government agencies and state-owned enterprises.
Changes to other tax rates will result in higher-income earners paying more in taxes.
"The tax reform aims to reduce the taxation burden of medium- and low-income earners, while appropriately increasing taxes on high-income ones," Wang Jianfan, vice director of the Ministry of Finance's taxation department, said at a news conference held by the Standing Committee of the National People's Congress on Thursday.
"General lower tax burdens reflect compensation from the government for higher residential living costs due to factors such as price rises," he said.
After the revision, only 7.7% of earners will need to pay personal income tax, down from 28%, Mr. Wang said. The change will reduce the government's tax revenue by about 160 billion yuan per year, he added.
The changes to the tax system will also reduce the number of marginal tax brackets to seven from nine, while the lowest tax rate will be cut to 3% from 5% and expanded to cover a bigger group of taxpayers. Two brackets, with rates of 15% and 40%, will be eliminated, Mr. Wang said, without giving more details on the changes.
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