Study On The Reform Of The Pattern Of Personal Income Tax In China

The pattern of personal income tax is very important in a nation’s personal income tax system. Patterns have significant effects in revenue collecting and economic regulation. World—widely speaking, nations chose different patterns in terms of their own different characteristics and policy needs. There are many defects of the personal income tax in China, and it has been urged for a long time to reform it, above all, reforming the pattern of personal income tax is a hot issue. This paper hopes to analysis the different patterns of personal income tax, discuss the influencing factors of the choice of the patterns, and raise suggestions of the personal income tax reform in China.There are three sections to discuss the reform of the pattern of personal income tax in this paper.Firstly, this paper discusses the features, advantages and disadvantages, implementing conditions of comprehensive income tax, dual income tax and flat tax. Under comprehensive income tax, a person’s income from all sources is aggregated and taxed according to a progressive rate schedule, so it’s characterized by broad tax base and the unique progressive tax rate schedule. Perfect comprehensive income tax has some advantages, such as large regulating scale, numerous tax revenues, in favor of equity, in favor of tax compliance and tax collection and administration, but the discrimination against savings is its main disadvantage. Comprehensive income tax in practice has different features from perfect income tax. The implement of comprehensive income tax requires good conditions of informationization, legal system, tax consciousness of taxpayers, and tax collection and administration as well. Dual income tax divides all incomes into two parts:capital income and labor income, and taxes capital income at a lower proportional tax rate while taxes labor income according to a progressive rate schedule of high level. Dual tax base and dual tax rate make up the characteristics of dual income tax, and perfect dual income tax is in favor of keeping international competitiveness, balancing efficiency and equity, and collecting fiscal revenue, but going against equity and hard to be administrated are its drawbacks. Dual income tax in practice also has different characters from perfect dual income tax. Countries implementing dual income tax have some common features:traditional welfare states with enormous fiscal expenditure, urgent need for economic growth and enhancing its competitiveness of tax system, laying strong emphasis on equity, high lever of tax collection and administration, ect. Flat tax combines all incomes of a taxpayer and taxes it at a low proportional tax rate. Low tax rate, consumption tax base and clean tax base feature dual income tax. Perfect flat tax has advantages such as meeting the requirement of simplicity and eliminating the negative effects on savings while violating equity. Flat tax in practice has different characters from perfect flat tax. Flat tax is appropriate for countries with properties as follow:low level of tax collection and administration, gap between the rich and the poor not becoming the most urgent issue of government, low tax consciousness of taxpayers, having the needs of economic growth and attracting investments. This paper chooses comprehensive income tax in the United States, dual income tax in Norway and flat tax in Russia as case studies.Secondly, this paper analyzes the current status of the pattern of personal income tax in China, and points out the current pattern of personal income tax have several drawbacks:vague guideline, prejudicial to equity and efficiency, and urgently to be reformed.Thirdly, this paper studies the realistic options of personal income tax reform in China. This part starts with the analysis of the tax environment in China, then discusses the feasibility to implement a pure pattern of personal income tax in China, and draws a conclusion that the comprehensive-classification personal income tax should be chose with learning ideas from the different patterns, instead of implementing any pure pattern, including pure cohesive income tax, pure dual income tax, and pure flat tax. The general principles of the reform are combining broad tax base with low tax rate, combining proportional tax rate with progressive tax rate, and taking tax collection and administration level fully into account. The specific reform measures are as follow:①Determine which kind of incomes are involved in comprehensive income. In the initial stage of the reform, salary income and service income can be taxed comprehensively, and when conditions permitting, other labor incomes can be included in comprehensive income.②Setting the thresholds. Appropriately raise the threshold of comprehensive income, adjust the threshold according to price index, and exclude the different treatment to different regions.③Set tax rates. The tax rates imposed on comprehensive income and classified incomes should be appropriately adjusted.④Eliminating some tax preference and broaden tax base. In addition, in order to achieve the success of the pattern reform of personal income tax, certain supporting measures should be reinforced, such as perfecting legal system to improve the information collecting ability of the tax authority, and raising taxpayers’tax consciousness as well.