Improvement On Chinese Personal Income Tax Legal System

In 1799, personal income tax law was newly established in the United Kingdom. Nowadays, personal income tax, which has been continuously improved and mended throughout more than two centuries, has become one of the main tax categories among the countries of the world. Personal income tax is a kind of tax which levies on the taxable income of the individuals. As a direct tax, is not only the main source of the state revenue, but also an important way on the regulation of the distribution of social income. For the purpose of the balance of the social income and narrowing the gap between the rich and the poor, the state, by means f personal income tax, increase the fiscal revenue and pay for the public expenditure. Over a short span of three decades, personal income tax, firstly levied in China in 1980, had been amended five times and continuously improved by enacting the additional laws and regulations according to the different economic situation. In 2008, the personal income tax revenue had reached 372.2 billion,which was only 160 ,000rmb in 1980. Therefore, personal income tax, as one of the first four main types of taxes in China, is no longer small at all. Widen concerns on Chinese personal income tax are aroused with the steady growth of personal income tax revenue and the important roles it plays. However, with the rapid development of the economic situation, it gradually reveals lots of inharmonious problems on the current personal income tax system in the field of tax management. Suppose, the regulation and the role of the personal income tax can not been exerted and played on the reduction of the gap between the rich and the poor, the reform on personal income tax is imminent.This paper, from the tax legal and practice point of view, explains the emergency of the Chinese personal income tax and its development process, analyzes the current status on the base of social and economic development reality and deeply examines the drawbacks and deficiencies on the mode of the current sub-collection tax mode. To consider and learn from the theory and reality abroad, we should broaden the connotation and denotation of the tax base, establish a tax mode on the combination of the integration and classification, standardize the pre-tax deduction system, optimize the structure of the tax rate, strengthen the tax management and improve the related facilities. Some suggestions and comments should be made in the field of the improvements on personal income legal system. This paper consists of four parts to study and research on the perfect and reform of the personal income tax legal system.Part 1 is an overall review on the generation, development process and the current situation of personal income tax legal system. This part serves as a foundation for the whole analysis. In the fist part, beginning with the generation of Chinese personal income tax, it reviews the development process within the thirty years, elaborates on the specific contents of five amendments, and witnesses the four different stages from the emergence and establishment, adjustment and enrich, standardization and unity, to the reform and improvement. On this basis, the part reveals, by analyzing and comparing a series of economic data in recent years, the current situation such as the low proportion of fiscal revenue, significant income differences between the east and the west, large income gag between the urban and the rural, imbalance among the taxable items, weak regulation on high-income groups and serious loss on tax revenue, ect. This part paves road for the further analysis of this paper.Part 2 focuses on the major problems exist in the current personal income tax law system. This part, from the main aspects of tax base, tax model, cost deduction, tax rate structure and the realistic problems, lists the major problems of the personal income tax law system and analyzes the reasons of such phenomena, like the first difficult tax on levy, less than half proportion on taxable tax, large proportion of wages and salaries and isolation from management on high-income groups. In the tax base, from the two angles of narrow tax range and unreasonable tax relieves, it points out that the"defined list"excludes the capital gains, fringe benefits and illegal income from the tax range which makes the tax range narrow. Tax mode, since the current sub-collection tax mode allows multi-source income earners enjoying a multi-source deduction benefits, wage-earners as a single source of income tax has become the heaviest populations. A higher tax on labor income than in non-labors reflects the great unfairness. In the expense deduction, because of the imbalance on current economic development among different regions, additional deduction system enjoyed by specific groups, unaware of the importance of family structure, as well as the neglect of economic situation and the impact on the payable ability, it reveals the incompatibility between expense deduction system with the economic and social development situation. The factor that income is similar in nature but different in tax treatment exposes the irrationalities in tax rate structure. At the same time, the author makes deep concern on the realistic problems on tax management, such as, the unhealthy declaration and withholding system, the lack of income monitoring system, tax unconsciousness, weak punishment and absence of incentive mechanisms, ect. From the legal point of view, it reveals the objective causes why in China the index on the gap between the rich and the poor is bigger than the others in Asia. At the same time this part points out direction for the following parts concerning the improvement on personal income tax law system.Part 3 emphasizes on the advanced theory and experience learned from the foreign personal income tax law system. This chapter serves as a link between the preceding and the following. This part, on the profound understanding of the main problems and disadvantages exist in the legal system of China's personal income tax, makes brief description on the reform and development of the foreign personal income tax status and targets the advanced theory and practical experience on the tax base, tax model, expense deduction, tax rate structure and the collection management from the foreign countries and provides reference and inspiration for China's further reform and improvement. This chapter outlines the common features of the foreign tax reform, for example, broaden the tax base by comprehensive income concept and tax preferences deduction, adopt a comprehensive income tax model in principle while individual income tax model on specific income, optimize the tax rate structure by means of "less-grade, low tax rate" , lower marginal tax rates, take measures on tax indexation system and establish a rigorous system of tax collection and revenue control system.Part 4 high lights the improvement on the personal income tax legal system in China, which is the core of this whole paper. This part serves as both a conclusion of previous statement and realistic situation on the regulation in China. The author makes respective prescription on how to reform and improve Chinese personal income tax system and propose some operable income tax improvement program by broadening the tax base, establishing a tax model by combination with comprehensive and classified tax, standardizing the expense deduction system, optimizing the rate structure and strengthening the collection and management as well as related facilities. The author specifically focuses on the legislation and technical improvement, such as, broadening the tax base by the concept of"undefined list"and reasonable tax relieves scope; adopting a transitional tax model in the near future by comprehensive tax model on industrious income while combination with comprehension and classification on un-industrious income; developing exemption criteria according to the range differences; balancing the national differences and considering the family unit; reducing the items of the tax rate, increasing the tax rate bracket, lowering the marginal tax rates and optimizing the tax structure, ect. In the Context of the legal system in a major tax reform, the author, as a staff at the front of the tax administration, particularly declares the establishment of a two-way declaration mode, creates a personal monitoring system and a sound personal credit system, increases the marginal cost of tax evasion, and actively promote the tax agency system to offer some effective suggestions on the reform and improvement of Chinese personal income tax legal system.