"Because China's personal income tax system is still in a fledgling stage, an adjustment in the system will not be of huge significance," said Jin Renqing, director of the State Administration of Taxation.

His idea echoed by Ni Hongri, a senior researcher with the Development Research Center under the State Council, who claimed an immediate reform would not result in increased consumption.

"For ordinary residents, a rise of the threshold from the current 800 yuan (US$96.4) per month to a higher level does not make any sense, because it will not help them buy expensive products such as cars and houses," Ni said, adding they did not lack the money to buy ordinary products.

But in the long run, the threshold for personal income taxation should be raised to build up people's purchasing power, she said.

Xia Jiechang, a tax expert with the Chinese Academy of Social Sciences, said the current threshold for taxation was first established in 1981, when the living standards of ordinary residents were relatively low.

At that time, the income of residents was less than 100 yuan (US$12) per month and so remained untaxed.

China's reforms and opening up over the past two decades have rapidly increased average incomes, he said.

"Residents with monthly incomes of less than 600 yuan (US$72.3) are considered low, with an income of at least 900 yuan (US$108.4) per month needed to maintain a basic standard of living."

The personal income tax reform should take into account whether the taxpayer has a child to support or elderly family members to look after, Xia said.

The threshold should be more than 1,500 yuan (US$180.7), he said. On the other hand, the current categorization of personal income taxation needs to be replaced with a more unified system, said Zhang Peisen, a senior researcher with the Taxation Research Institute.

China's individual income tax rates fall into 11 categories based on income source, which neglects control over the total annual income, he said.

The system should be improved by unifying tractable and regular categories, including salaries and individual business income, he said.

"The country's personal income tax has a long way to go in playing its role in helping adjust income distribution in society," he said.

According to investigations, the Gini Coefficient, an internationally accepted index used to measure income distribution, stands at 0.458 in China, greater than the international warning line of 0.4, meaning that Chinese society has entered a zone of income distribution inequity.

Social stability and, in particular, economic development, will be affected, if the problem of the income gap is not resolved, Zhang said.

(China Daily January 11, 2002)