Text/Liu Kegu and Zhang Bin
Published in the 973th issue of China News Weekly on November 23, 2020
At present, the income gap of Chinese residents is relatively large. From 2003 to 2019, the Gini coefficient has been fluctuating at a high level between 0.46 and 0.49. Especially after 2015, it has shown an upward trend and has long been in the forefront of major countries in the world.
Judging from the changes in the Gini coefficient before and after taxes and transfer payments, among major countries in the world, my country's tax and transfer payments have the weakest regulatory function.
Why is it difficult for the current tax system to better exert its income distribution adjustment function?
The "14th Five-Year Plan" National Income Distribution and Taxation Reform Task Force found that the fundamental reason is that the scale of personal income tax is too small and the proportion is low.
Compared with major countries in the world, China's personal income tax accounts for a significantly lower proportion of GDP and total tax revenue.
Therefore, the personal income tax reform should adjust the income distribution of all citizens, narrow the income gap, and reduce the Gini coefficient as one of the main goals.
To this end, based on the principles of "wide tax base, low tax rate, simplified tax system, and strict collection and management", the following individual tax reform measures should be adopted:
One is universal taxation and low tax rates are applicable.
The current economic slowdown at home and abroad, the new crown epidemic has severely affected the production of enterprises and the lives of residents, and the current tax policy can be basically maintained.
After the economic recovery, it is necessary to take into account the income growth of residents and the reduction of other tax burdens, and gradually increase the coverage of individual taxpayers in installments, and increase the proportion of taxpayers in the total population from 13% to 33% in the medium term.
Most taxpayers apply the low-end tax rates of 3% and 1%, or the low-end tax rate of 10%, to increase the progressiveness of the tax system while ensuring that the overall tax burden of residents is not increased or high.
The second is to coordinate the balance between labor and capital income tax rates and take into account the international competitiveness of individual taxes.
The third is to create conditions to implement independent tax declaration methods with individuals or families as the main body.
Starting from March 2020, with the implementation of annual consolidated income accounting as a sign, personal income tax collection and management will be transformed from a precise withholding and payment system to an annual accounting system based on self-declaration.
In the future, taxpayers may be allowed to choose their own tax method at an appropriate time.
The fourth is the return threshold, and the threshold is "basic living deduction".
In recent times, individual tax reforms have mainly focused on the adjustment of the threshold, and even equated individual tax reform with raising the threshold. This is a misunderstanding of individual tax reform.
The threshold should refer to the basic living expenses, rather than the current average living expenses standard, and should not be increased in the short term.
Fifth, reduce the maximum marginal tax rate of individual tax in a timely, appropriate, reasonable, and step-by-step manner, such as from 45% to 40%, and gradually link the tax rates of labor income, capital income and business income to prevent individuals from avoiding tax through conversion income.
Sixth, select special additional deductions appropriately and steadily, prioritize the improvement of basic living expenses deductions, and introduce child support and education deductions; pay attention to the division of labor and coordination with housing, pension, medical care, education, and minimum living security systems.
The seventh is to further clarify the two-way information transmission relationship between withholding agents, taxpayers and tax authorities, as well as related legal power and responsibility relationships.
Improve the legal level of tax collection and management.
The eighth is to establish a national centralized personal tax and fee data system.
Make full use of information technology such as cloud computing and big data to strengthen information sharing and departmental coordination to promote the scientific allocation and effective use of tax-related information resources.
At the same time, establish a third-party information regular reporting system, and establish a unified and interconnected national big data system for natural persons to facilitate information comparison and verification.
The Third Plenary Session of the Eighteenth Central Committee proposed to "gradually increase the proportion of direct taxes". This is an important decision to adapt to the objective requirements of China's industrial structure and tax source structure changes to the tax structure reform.
In the medium and long term, the basic goal of the personal income tax reform is to gradually increase the income scale of personal income tax and its proportion in total tax revenue; at the same time, reduce the proportion of value-added tax income accordingly.
From the perspective of China's economic transformation at this stage, reducing the proportion of value-added tax and increasing the proportion of corporate and personal income tax will help expand domestic demand and improve the quality of economic development.
China News Weekly, Issue 43, 2020
Statement: The publication of "China News Weekly" manuscript is authorized in writing