China should change its tax policies to narrow the income gap between the rich and the poor, experts said.

As the country's economy has grown, the income gap between the rich and poor has expanded, according to a group of Ministry of Finance experts.

The Gini Coefficient, an international index used to measure income inequality between groups of people, rose from 0.282 in 1991 to 0.458 in 2000 -- higher than the international ``alert'' line of 0.4.

This means Chinese society has entered the zone of income distribution inequality, the experts believe.

Zhang Xueying, a senior economist with the State Information Centre, said the increasing income gap has become a headache for government because of its huge negative impact on domestic spending.

The government should help rural people move to the cities to boost their low income levels, he said.

Ministry of Finance experts also suggest the government raise the threshold for personal income tax, which stands at 800 yuan (US$96).

The tax rate for those who earn less than 5,000 yuan (US$602.40) per month should also be lowered, they said.

Zhang Peisen, a senior researcher with the Taxation Research Institute, agrees the current 800-yuan (US$96) starting point for taxation of monthly income needs to be raised.

"Tax policy should target people with high incomes to promote economic development and social stability,'' he said.

Personal income tax should also be based on bonuses, dividends and other income sources, instead of just salaries as it is today.

Meanwhile, an individual's personal circumstances, including their support of a child or elderly person, should be considered before tax is computed.

Zhang said current personal income tax rates fall into 11 different categories based on income sources, and this system does not take much account of an individual's total annual income.

Income from non-salary sources is usually not taxed, unless people choose to declare it.

The system has many loopholes which tax evaders exploit, Zhang said.

The most common is for business owners to show personal spending as company expenditure.

Some even include their personal incomes in enterprises' turnover to evade personal income taxes that are usually higher than corporate taxes.

(China Daily June 18, 2003)