China Income Tax Reform: New rate schedule to offer savings of up to 50% on personal income tax

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02:45

The new income tax rate schedule will allow taxpayers to save up to 50 percent on their contributions. Gary Anglebrant has the details.

Ma Youxin and Yang Xiaoyu have been married for 2 years. They are both white-collar-workers living in Beijing and love to travel. When they receive their salary this October, they are expected to see more money on their paycheque, thanks to a new tax rate schedule.

YANG XIAOYU (L), MA YOUXIN (R) BEIJING RESIDENTS "I make between 10 to 15 thousand yuan a month, while my wife makes about 6 to 8 thousand yuan. This tax reform has widened the interval for lower tax rates, so a lower rate will be applied to people's incomes. This means we will earn about a thousand yuan more a month. That's an extra 12 thousand yuan a year."

The tax cut may not seem like a lot, but for a mid-income family like Ma and Yang, who are living in a Chinese mega-city like Beijing, plus have a mortgage to pay, the changes mean more money can now be spent on fine dining, or even staying at a nicer hotel during future holidays.

The new rate schedule has raised the personal income tax baseline from 3500 yuan to 5000 yuan, which means if one makes less than 5000 yuan a month, he or she won't need to pay income tax at all. China has a progressive taxation system for income tax. Intervals of 3%, 10% and 20% have been greatly widened. So lower tax rates will cover more of the population.

Under the new Individual Income Tax Law, expenses for children's education, continuing education, mortgage interest rates, rent, and severe illnesses, will also be deducted from an individual's taxable income. This will all go into effect January 1st of next year.

Experts say low to mid-income individuals will benefit the most from the tax reform.

DR. LIU CHUNSHENG ASSOC. PROFESSOR, CENTRAL UNIVERSITY OF FINANCE AND ECONOMICS "First, all taxpayers will benefit from this tax reform. But this time the mid to low income population will benefit the most, because of the higher baseline and wider low tax rate intervals. Low tax rates will cover larger mid to low-income earners. Especially those living in smaller cities."

Liu believes lowering the income tax will also have a positive effect on the country's economy.

DR. LIU CHUNSHENG ASSOC. PROFESSOR, CENTRAL UNIVERSITY OF FINANCE AND ECONOMICS "A lower tax rate will stimulate consumption. It will also lower the burden for small business owners. With lower tax, they might also invest more."

Tax is essential in fine-tuning a country's economy. But when it comes to ordinary people, more money means a better life.