On Optimizing Personal Income Tax Rate In China

In2011, the21stsession of the11thNational People’s Congress was held inwhich the decision of amending the Personal Income Tax (PIT) was made. Theamended PIT increased the standardized deduction for the income from wages salariesfrom2000yuan a month to3500yuan a month and cut the number of its tax bracketsfrom9to7. And the amended PIT also adjusted the annual taxable income of eachgrade in the progressive tax rate schedule for income from production and business ofindividual industrialists and merchants and income from contracted or leasedoperation of enterprises or institutions.The PIT has adjusted for6times since1980. But the amendment in2011beginsto perfect the tax rate system differing from previous ones in which only used themethod of increasing the standardized deduction. There still exists some pity aboutthe rate system of the amendment. With the respect to the form of tax rate, there is asharp conflict between progressive tax rate schedule and the classified pattern. Withthe respect to the level of tax rate, the attitude of pro capital but weakening labor iskept and levies different labor income items by different rates.Based on the realities mentioned, the paper studies the PIT tax rate from theperspectives of form and level. And combing the national conditions with somefavorable experience derived from the global PIT tax rate reform, the paper alsoprovides the step-by-step plan for optimizing the PIT tax rate in China.In the first chapter, the paper introduces the background and significance of thetopic, the composition of the paper, probably existing innovation points and itsshortcomings.In the second chapter, the paper theorizes on the tax rate and draws someconclusions from the development of PIT around the world for the purpose ofproviding some pieces of meaningful advice. At first, the paper in this chapterillustrates the concept, theoretical analysis and the effect of proportional tax rate andprogressive tax rate. And by deducing and inducing, it also finds the intentions of thetwo different PIT tax rate forms and the rules of technology between PIT tax rate formand tax pattern, income items. Next, the paper analyzes the influential factors and the effect of the PIT tax rate level. At last, it studies the tax rate level of PIT proportionaltax rate in many countries differing in tax patterns. The paper also studies the detailedtechnology of the PIT progressive tax rate in this part and concludes the trend ofdevelopment of PIT progressive tax rate.In the third chapter, the paper introduces the development, condition of the PITtax rate in China and the background of different PIT tax rate systems in each stage.Meanwhile, it analyzes the effect of PIT tax rate in China making use of average taxrate and progression and concludes the shortcomings.In the forth chapter, from the perspective of government, the paper derives theintentions of PIT tax reform from The Twelfth Five-Year Plan for National Economicand Social Development of the Peoples Republic of China and Prospect of TaxDevelopment in “twelfth Five Year Plan” Period. Based on the derived intention, thestep-by-step PIT tax rate reform is given. Firstly, the paper provides the plan for PITtax rate in China under the classified tax pattern. Secondly, the paper designs theprogressive tax rate under the mixed tax pattern. In order to testifying the advantageof the step-by-step plan, the paper at last analyzes the effect of the two PIT tax ratesystems.