The followig is an interview on personal income tax with Jin Renqing

Question:Out of what consideration is it proposed to raise the personal income tax base?

Answer: A heightened "threshold" of the personal income tax can be described as a reflection of people's feeling. The current related policy was formulated in 1994. During the ensuing seven years, the income of urban residents has grown at an annual 6-7 percent rate, and that of rural people at a 3-5 percent rate. The nominal income has doubled since 1994 (price factor excluded), the base of personal income tax still remains at 800 yuan. This is obviously unfair. Any category of taxation adopted plays two roles: One is for regulation and control; the other is for accumulation of a certain amount of wealth for the country. The main function of personal income tax is to regulate and control the income gap. At that time, 800 yuan was a relatively high income level. But today, it is only an income for maintaining the basic living standards in such regions as Shanghai and Shenzhen.

Q: China has a vast expanse of territory, some regions are relatively rich, while some are comparatively poor. In view of such reality, should we consider defining several large regions and allow them to determine their respective different basic tax collection points?

A: This idea contains some grain of truth. China's regions differ vastly in their economic development. It is obviously unfair to adopt a uniform tax base. Moreover, personal income tax, a local tax item, is placed under the management of local governments. It thus involves a fundamental question relating to the tax system: Should legislative power over taxation be granted to locality? If it should, the local government will have the right to decide the tax base. Currently, the tax base is decided by the central government, it is necessary to stress the unity of tax base, and it is not allowed to have different discriminatory tax rates in various localities, this is really a difficult choice. Because, under the current financial system, if the tax base is set at 800 yuan for Region A, and 1,500 yuan for Region B, then it will give rise to the counter-flow of funds the tax fund of Region A will flow to Region B. Because tax on a personal income of 800 yuan is paid in Region A, while it is 1,500 yuan in Region B. Such backwash is obviously disadvantageous to the development of relatively poor and backward regions and is contrary to our point of departure. Therefore, we think that under the present circumstance, a unified tax rate is better than a discriminatory one.

Q: Then, how to give expression to fairness?

A: It is the requirement of taxation that there should be fairness within an extensive area, and this is no exception with personal income tax. Because economic development is uneven in different regions, the price level also varies distinctly, Even if the government specifies the pre-tax deduction items, the corresponding purchasing power of money cannot be the same. It is unfair to handle things in accordance with the one and the same pre-tax deduction volume (the deduction volume is low in high-price level areas). Of course, some scientific and reasonable measures can be taken into consideration, for instance, applicable pre-tax deduction volume can be specifically fixed for different regions on the basis of the price indexes in various regions, and the gap between different grades of progressive tax rates appropriately widened, so as to improve the fairness of personal income tax.

Q: will national tax revenue decrease after the personal income tax base is raised?

A: we think that in reforming the personal income tax system, we may consider enlarging the tax base, i.e., expanding the scope of tax collection. Doing so makes it possible to guarantee that the total volume of the personal income tax will not decrease after the taxable base is raised . Take the following for example. First, include the incomes originally excluded from the tax base into the aggregate income, generally these include: the benefits a person derives from the social security system, such as unemployment insurance, family subsidy and medical allowance, and capital profits, various non-wage extra income gained by individuals from the employer; second, cancel or reduce certain reduction or exemption items related to particular tax burden. These generally include: cancel or reduce the tax reduction in or exemption from various particular expenditures (e.g. consumer credit expenditure, medical treatment expenditure, etc.) and interest income.

Q:How to differentiate the major objects of personal income tax collection?

A: According to the experiences of foreign countries and China's specific national condition, we think the focus of tax collection should be placed on the following six groups of people: some private proprietors and industrial and commercial households; some artistic performers, professional athletes, construction project contractors and other high-income earners; some professionals with intermediary institutions including lawyers, certified public accountants, evaluators, and operators with securities institutions; some intellectuals who earn quite a handsome income by engaging in hi-tech industry or selling intellectual products, as well as foreign employees; and high-income earners among the salaried stratum.

We believe that the above six groups of people will be the most important source of personal income tax through strengthening taxation management over them.

The personal income tax should give greater expression to the goal of fairness and control of high income. To this end, we suggest that reform be carried out in three ways: In the set-up of the tax system, greater tax should be levied on higher income earners and a higher tax rate should be set; in the construction of the tax system, low-income earners should be given tax reduction or exemption, and the low-income limits should be gradually raised, expense deduction items should be increased and expense deduction standard be lifted. In addition, the current classified tax collection system should be turned into a mixed tax levying system as quickly as possible, so that high-income earners will really pay more tax.

(People's Daily 02/16/2001)