Individual income tax regulation
China's new individual income tax regulation takes effect on September 1, 2011. It is an amended law, which raises the monthly tax exemption earnings threshold from 2,000 yuan (US$313.54) to 3,500 yuan.
The new law sets 60 million people in the country free from taxation. According to the Ministry of Finance, it will cut 160 billion yuan from the government’s yearly fiscal revenue.
Experts are divided on how effective the new law will be. Some economists believe it will narrow the widening income gap between the rich and the poor. Chen Gong, a professor of Public Finance at Xiamen University said: "The main beneficiaries of the cuts in income tax would be those who earn 4,000-8,000 yuan a month."
However, not every economist is as optimistic as Chen. Zhang Shuguang, an economist with the Unirule Institute of Economics, described the changes as "more symbolic than practical." He said: "It just helps people to vent their anger."
Many economists believe that the measure won't have a direct effect on economic development, as it covers neither the production nor circulation sectors. Furthermore, it is unlikely to release people's purchasing power.
The government raised the earnings threshold for individual income tax from 1,600 yuan (242.4 U.S. dollars) a month to 2,000 yuan in March 2008. But many experts say the rise lagged far behind increases in both wages and consumer prices.
