Research On Expense Deduction System Derivered From Salary Income Of China’s Individual Income Tax

The individual income tax of our country has been connected with the government work and every citizen’s life since1980when it was established. With the continuous perfection of socialist market economic system, the people’s living standards are rising. The growth of income is being accelerated and the individual income tax revenue has occupied an increasingly important position in our country financial revenue. As one of the direct taxes aimed at individuals in economic activities, the personal income tax is not only one of important financial sources but aiso an important means of residents’income redistribution. In the continuous reform over nearly30years, our country has initially established relatively perfect taxation theory and the individual income tax system. According to the data that individual salary income tax has accounted for65.29%of total annual revenue from the individual income tax by2010. This made the working class become the main force of individual income tax. This phenomenon is against the fair principle of taxation. Though relevant departments have adjusted expense deduction of salary income for many times, the clamour for improving the deduction standard persisted. One reason is that there is a general feeling that disposable income cannot meet the consumption expenditure which is closely related to CPI. The rise in prices eroded the national basic living expenses and led to the enlargement of the income differences. Especially the working class suffered a greater impact. So the aspiration for reforming expense deduction system of salary income is increasingly urgent.This thesis analyzed the elements that restricted development of expense deduction system of salary income. In theory, the ripe expense deduction system in USA was introduced and compared with the facing problems of our country in this field. And the conclusion that tax indexation is the basic way to break the bottleneck that restricted development of expense deduction system of salary income was drawn. In practise, the thesis explored the interrelation of expense deduction of salary income, average consumption expenditure and CPI. The individual salary accounted for annual income was considered. The dynamic models were constructed and proved their feasibility through using actual data. Finally, the thesis put forward a conclusion and made policy proposal to reforming expense deduction system of salary income.