Chinese lawmakers began the second reading of a draft decision on the Individual Income Tax Law at a bimonthly session of the top legislative body on Monday.
Explaining the draft to lawmakers at the start of the National People's Congress (NPC) Standing Committee session, Xu Hui, vice chairman of the NPC's Constitution and Law Committee, said that it is necessary to revise the current law to enable taxation to better play its role in adjusting income distribution.
According to a draft amendment deliberated at a bimonthly session of NPC Standing Committee in June, the minimum threshold for personal income tax exemption was raised from 3,500 yuan (about 512 U.S. dollars) to 5,000 yuan per month or 60,000 yuan per year.
The draft amendment added special expense deductions for items like children's education, continuing education, treatment for serious diseases, as well as housing loan interest and rent.
The decision under deliberation adds a new special expense deduction for caring for the elderly. "The move has fully taken into consideration the fact that the aging population and the number of single-child families are mounting among the wage-earners in China," Xu said.
The State Council should set the range, standards, and enforcement steps for the special expense deductions and then report to the NPC Standing Committee, said a provision added to the draft.
The draft also stated that taxation authorities should provide taxpayers with information on their income and tax withheld.
The individual income tax was the third major contributor to China's total tax revenue, following value-added tax and enterprise income tax. In 2017, China collected individual income taxes worth nearly 1.2 trillion yuan, about 8.3 percent of the total tax revenue.
The current law has undergone seven revisions since it was enacted in 1980 when the original threshold for individual income tax exemption was 800 yuan per month.
It was raised to 1,600 yuan in 2005 and 2,000 yuan in 2007. The current threshold is 3,500 yuan according to the revision made in 2011.
According to the draft, the previous method of taxing monthly income will be replaced with a new calculation which focuses on taxing annual income.
The draft decision is scheduled to come into force on Jan. 1, 2019 while part of the decision including the minimum threshold for personal income tax exemption is scheduled to go into force on Oct. 1 this year.