China Raises IIT Exemption Threshold

Apr. 21 – As we reported last month in our article China to Raise Deductible Income Rate for IIT, the Chinese Ministry of Finance has confirmed it will raise the level at which Chinese citizens must pay individual income tax to RMB3,000 from the current level of RMB2,000.

The move, expected to be implemented in the second half of the year, will see some 50 million people drop out of income tax paying status and will reduce taxable revenues collected by the government from domestic IIT by some RMB100 million annually.

The move is being seen as an attempt to close part of the income gap. The raise in exemption follows similar policies to narrow income bands in China, such as raising minimum wage levels at an aggressive 15 percent to 20 percent per year, aiming to double them by 2015.

Plans are also in place to raise the official poverty line from the current level of US$.05 per day to US$0.63 per day to include more people within its social security system. This move alone would triple the official number of people living in poverty in China, yet is still below the UN standard of US$2 per day. Some 20 percent of China’s population still lives in extreme poverty.

Related Reading
The China Tax Guide (2011, Fifth Edition)

A comprehensive overview of all the taxes foreign investors are likely to encounter when establishing or operating a business in China. (PDF priced at US$40)

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