Economist: China to Increase Individual Income Tax Threshhold

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Nov. 24 – China’s leading economist said that the government has decided to increase the individual income tax threshold to spur domestic consumption.

Peking University professor Zhou Qiren told China Daily that the aggressive tax-reduction measures at corporate and personal levels aims to stimulate slowing domestic demand caused by the global economic crisis.

“As far as I know, the National People’s Congress has already reached the consensus to do that (increase the benchmark of individual income taxation),” said Zhou during a management forum held in Beijing.

Zhou added that the individual income tax threshold should rise to a higher level from the current RMB2,000 per month to boost personal disposable income and spending.

He advised that China should cut the VAT taxation rate from 17 percentage points to seven percentage points.The government announced a new RMB4 trillion stimulus package and measures of VAT reform.

He said, “That is not enough and the country should reduce VAT rate dramatically to decrease the enterprises burden.”

“All these measures will put the government in a difficult position financially but we have to,” Zhou added, saying that local governments should also cut their administrative spending.

Zhou has already submitted a radical taxation cut package proposal to the central government. He said the country will need comprehensive reforms and policy packages to buffer the economy from the effects of the global financial crisis.

He said that the the government should allow the markets to be and give up pricing regulation.

“It’s high time we should do that and today’s worsening economic situation has partly resulted from incorrect signals due to too much pricing regulation.”