The "14th Five-Year Plan" reveals the new direction of individual tax: comprehensive income expansion, 45% tax rate or optimization

  Author: Chen Yi-Journal

  Experts believe that during the "14th Five-Year Plan" period, the reform of individual taxation will continue, and the scope of comprehensive income will gradually expand to property and capital income, and the tax rate structure will be adjusted accordingly, such as reducing the highest marginal tax rate by 45%.

  The last round of tax reform has reduced the tax burden of many low- and middle-income earners, and the tax reform will continue during the 14th Five-Year Plan period.

  "The 14th Five-Year Plan for National Economic and Social Development of the People's Republic of China and the Outline of Long-Term Goals for 2035" (hereinafter referred to as the "14th Five-Year Plan") stated that the personal income tax system will be improved, the scope of complex income will be expanded, and the tax rate structure will be optimized.

  Last November, Minister of Finance Liu Kun wrote an article that during the "14th Five-Year Plan" period, the personal income tax system that combines comprehensive and classified personal income tax will be further improved.

Promote the reform and amendment of personal income tax in a timely manner, reasonably expand the scope of income included in the syndrome tax, improve special additional deduction items, and improve the policy system for attracting high-end overseas talents.

  According to the analysis of CBN by many taxation experts, individual tax reform during the "14th Five-Year Plan" period will still be the highlight of the tax system reform. After the first step of the comprehensive tax system in the previous round of reform, the scope of comprehensive income will continue to expand in the next step. Sexual income and capital income will be gradually included.

On this basis, the structure and level of individual tax rates will be further adjusted. The highest marginal tax rate of 45% is expected to be lowered. The tax rate and level will be further optimized to reduce the burden of low- and middle-income earners as a whole and strengthen tax regulation and supervision of high-income earners. Intensity.

  Property and capital income should be gradually included in comprehensive income

  A major direction of individual tax reform is to regulate income distribution, focusing on fairness.

The personal tax reform officially launched in 2019 introduced a comprehensive tax system for the first time. The four incomes of wages and salaries, labor remuneration, royalties, and author's remuneration previously categorized were unified into comprehensive income, and a unified 7-level excess progressive tax rate was adopted. Instead of using different tax rates for the previous four different incomes, it reflects fairness.

  However, compared with the widespread adoption of a large comprehensive tax system abroad, the scope of comprehensive income in China is relatively small. At present, comprehensive income is limited to labor income, and capital and property income such as interest, dividends and dividends, which account for a large proportion of income from high-income groups. not include.

Compared with the maximum applicable marginal tax rate of 45% for labor income, the current proportional tax rate for both property income and capital income is 20%.

  The key to balancing the individual tax burden between labor income, property income, and capital income is to expand the scope of comprehensive income. The above-mentioned "14th Five-Year Plan" has already clarified this direction.

  Gao Peiyong, deputy dean of the Chinese Academy of Social Sciences, recently wrote an article that building on the success of this reform of individual taxation, we should take advantage of the momentum and carry out the comprehensive reform of the individual tax system to the end.

The main goal of individual tax reform is to achieve fairness and justice in taxation.

The optimal tax system is a tax system that meets the people's growing needs for a better life.

The personal income tax system that combines integration and classification should be further improved, and the scope of income included in the syndrome tax should be reasonably expanded, such as including property income and capital income.

  Under the current individual tax system, the taxation method is still used for business income, interest, dividends, bonus income, property lease income, property transfer income, incidental income and other income.

  The comprehensive income tax system has relatively high requirements for collection and management. Many finance and tax experts told China Business News that because operating income is of the nature of labor income and the excessive progressive tax rate is adopted, it is expected to be included first. Reform is easy and conforms to international practices.

Other income can also be included gradually.

Each type of inclusion will have an impact, and it is necessary to comprehensively evaluate the economic and social impacts to prevent other risks caused by this.

  It is expected to reduce the maximum marginal tax rate and adjust the tax rate range

  As the scope of comprehensive income expands, the tax rate structure should also be further optimized.

  Currently, comprehensive income adopts 7 grades of excess progressive tax rates, with a total of 7 grades of tax rates of 3%, 10%, 20%, 25%, 30%, 35%, and 45%, of which the annual taxable income exceeds 420,000 yuan, which is applicable accordingly For the last three tax rates, the highest tax rate of 45% applies to the portion of the annual taxable income exceeding 960,000 yuan.

  Feng Qiaobin, deputy secretary-general of the Chinese Institute of Finance, told China Business News that the problem of the excessively high 45% marginal tax rate is currently attracting more attention. Some people have called for a reduction of the 45% maximum marginal tax rate. Some believe that it should be reduced to about 35%, and some even suggest a reduction. To 25%.

  "I also agree with the reduction of the 45% maximum marginal tax rate, but we should be cautious and can moderately reduce the maximum marginal tax rate. Because with the development of the digital economy, the entire income distribution may be more inclined to capital and technology. In the future, individual taxes will still be needed to play the role of income distribution regulation. The tax rate can be adjusted in small steps and quickly to adapt to the current economic and social development." Feng Qiaobin said.

  Yang Zhiyong, a researcher at the Institute of Financial Strategy of the Chinese Academy of Social Sciences, told China Business News that the current individual tax rate structure is unreasonable, and the highest comprehensive income tax rate is appropriately lowered. The applicable income should be increased to better promote the expansion of the middle-income group.

In addition, the tax rate can be simplified to three levels.

  "The current design of the individual tax rate structure is not scientific and reasonable, which affects the adjustment function of the individual tax income distribution. The next reform should reduce the tax burden of low- and middle-income groups and increase the adjustment of excessively high income." Director of the Shi Finance and Taxation Law Research Center, China University of Political Science and Law Shi Wenwen said.

  He told China Business News that in accordance with the income distribution rules of low-income, middle-income, and high-income groups, and the principle of classification adjustment, the tax rate of each tier is designed to be differentiated.

Taking into account the reduction of the burden of low- and middle-income earners and the continuous expansion of comprehensive income, the corresponding tax rate range should be further broadened and the tax rate should be optimized. Effectiveness.

  In the 2019 IIT reform, by expanding the tax rate range of the first three tiers, it has effectively reduced the IIT rate of low- and middle-income earners, and the effect of reducing the burden is very obvious.

  Gao Peiyong suggested that at the level of system construction, the direction should be to appropriately increase the proportion of direct taxes.

As the most important type of tax in the direct tax system, individual tax reform should be oriented towards tax reductions for low- and middle-income groups and tax increases for high-income groups.

Between one reduction and one increase, the proportion of direct tax should be appropriately increased.

  He believes that the next step is to improve the policy system for attracting overseas high-end talents in personal tax, and adjust the highest marginal tax rate of 45% as follows.

  The former Minister of Finance Lou Jiwei once suggested that the maximum marginal tax rate for individual taxes could be reduced from 45% to 33%.

  The "14th Five-Year Plan" states that it is necessary to improve the direct tax system, improve the comprehensive and classified personal income tax system, and strengthen tax regulation and supervision of high-income earners.

  In addition to the continued optimization of the individual tax rate structure, the special additional deduction system will also be further improved.

  Taking into account the differences in the actual expenditure burdens of individuals or families, the 2019 tax reform introduced 6 special additional deductions for children’s education, continuing education, medical treatment for serious illnesses, housing loan interest or housing rent, and support for the elderly. This further reduces the burden on taxpayers and also Make the tax system fairer.

  Many fiscal and taxation experts said that the next special additional deduction standards will be dynamically adjusted according to the current economic and social development, such as appropriately increasing the housing rent deduction standards, and considering the actual deduction of housing loan interest expenses.