On The Improvement Of The Expense Deduction System In Personal Income Tax Law

As an important kind of tax, the main function of personal income tax is to balance an income gap between different workers in order to realize fairness in taxation. With the rapid development of economy and the increasing improvement of standard of living, the sources of income are being diversified increasingly, and the income gap between different people from different regions is increasing, therefore, the previous law is not suit for the current economic situation anymore and needs to be improved. The well-deigned expense deduction system in personal income tax law can reflect the true tax-paying ability of taxpayers and consideration for the taxpayers who meet the requirements. Thus, it directly influences the balancing ability and the effect of personal income tax. As a subject of research, the issue of improvement of expense deduction system in personal income tax law is expounded in the paper.The thesis can be divided into four parts: the first part is about the theoretical basis of expense deduction system in personal income tax law. The second part is about the comparison and reference of expense deduction system in personal income tax law in foreign countries. The third part is about the evaluation and analysis of expense deduction system in personal income tax law in China. The fourth part is about how to improve expense deduction system in personal income tax law.The first part begins with the definition of expense deduction system in personal income tax law, making clear its meanings, that is, a system arrangement in which the necessary cost taxpayers used to get income and the cost needed to support the taxpayer himself and his family (living cost) is deducted from taxpayer's total income before tax collection. It sorts the category of the expense deduction ways, including fixed amount, fixed rate and a combination of them. Then it elaborates on the three characteristics of expense deduction system in personal income tax law, including: First, its main purpose is to reduce the burden of taxpayers. Second, a direct derating, a derating from the collecting point and a deduction inadvance are used as a main form. Third, the deduction scope is wide, and it has closely relationship with other systems such as medical treatment, housing, education and social security and so on. Above all, expense deduction system in personal income tax law is a kind of preferential measures of taxation. Then, combining the calculating features of personal income tax, the function of expense deduction system in personal income tax lies in that it adjusts the dutiable amount by regulating the tax base under the premise of fixed total income and tax rate. Thus the core status of the system is established in affecting the adjusting function of personal income tax. Based on this, two functions of this system are concluded: first, adjusting income distribution and making tax burden fair; second, promoting economic development and reducinge financial burden. At last, the setting principle of this system is given on the basis of its status and function, that is, fairness preferred, efficiency concerned.The second part is about the comparison and reference of expense deduction system in personal income tax law from foreign countries. The thesis summarizes expense deduction system in personal income tax of some typical countries, such as America, Britain, Japan, Canada and Singapore. From the above summary, it is found that although systems in different countries are different, they have something in common, including the specification of living cost deduction, tax index and preferential specifications of old age and child care, specification of medical expense deduction, specification of special crowds, specification of charitable donation deduction and so on. These general characteristics have positive impacts on the fairness of taxation collection, economical development and social stability of these countries, therefore they can also be used for reference for China's expense deduction system in personal income tax law.The third part is about the evaluation and analysis of expense deduction system in personal income tax law in China. The emergence and development of expense deduction system in personal income tax law in China has experinced three stages: the first stage is from the founding of new China in the year of 1949 to 1979. During this period, no real personal income tax was in execution. The second stage is from the year of 1980 to 2005, in which the personal income law has been revised for the second time, and this is the period and its birth and initial development. The third stage is from the year of 2005 till now, this is a period the real beginning of the system's reform. Through a summary and an analysis of the different stages, the basic plot of expense deduction system in China is clear, and then some detailed specifications of the system are enumerated. Above all, a summary about the deficiencies and shortcomings of expense deduction system in personal income tax law in China is made. They are mainly reflected in the following five aspects: first, using a united expense deduction standard is contrary to the situation of the country; second, de-rating items are too miscellaneous without considering the core problems of taxpayers; third, not carry out expense deduction standard index; fourth, the classification income tax mode is easy to lead to the unfairness of tax burden.The fourth part is the core of the whole thesis, and it gives specific suggestions about how to improve expense deduction system in personal income tax law. Centering the deficiencies and shortcomings of the system mentioned in the third part, it puts forward the improving measures accordingly. First of all, the four directions of reform are made clear. First, the basic living need of taxpayers and their family should be satisfied; second, tax burden fair should be made in order to exert adequately the adjusting function of personal income tax; third, the weak groups should be cared in order to reflect humanity; fourth, tax operational cost should be reduced in order to improve tax collecting efficiency. After that, the specific measures of the reform of expense deduction system in personal income tax law in China is elaborated in the paper, it mainly includes five aspects: first, the family is allowed as a whole when calculating the amount of deduction; second, adjustment of expense deduction index is carried out; third, reducing items of tax de-rating, enlarging tax base, including the cancel of some inconsistent items and some improper tax-free items; fourth, different expense deduction standards should be established according to the different economic development levels in different regions; fifth, expense deduction items should be increased according to the situation of the country, including pension, spouse expense education expense, medical expense, housing expense and so on. Finally, it is some suggestions about other complementary reform, mainly as follows: first, the current classification income tax system with mixed income tax should be replaced; second, a perfect income supervision system should be established and more high taxpayer should be incorporated into the net of tax; third, tax collection and management level should be improved, including strengthening the job of income tax deduction, personal income declaration system, tax agency system, tax law publication, and the strength of punishment of tax-related crime and so on.