The Chinese government is planning a major overhaul of the country's personal income tax system that will be "ten times more significant" than the VAT reform announced last November, the Chongqing Evening News reported over the weekend, citing unnamed sources.

The reform, which aims to establish a hybrid system combining aspects of comprehensive and classified tax systems, will be much more far reaching than the expected raising of tax thresholds, the newspaper said.

China currently uses a classified tax system that assesses an individual's income from different sources separately, but intends to incorporate aspects of a comprehensive system under which income tax is calculated by considering total income from all sources. The new system will also take into account the taxpayer's family situation and allow for basic living expenses and other itemized deductions.

The reform will cut the tax burden on low and middle-income taxpayers and target high-income taxpayers more accurately, according to the newspaper.

The Ministry of Finance has been holding meetings to discuss the reform, the source said.

(China.org.cn by Yan Pei February 9, 2009)