The State Administration of Taxation last week issued a notice requiring tax bureaux at different levels to keep a close watch at personal income tax paid by high-income people such as sports stars, movie stars, singers and owners of private companies.

"The move indicates that the country has decided to improve its personal income tax system,'' said Zhang Liqun, a senior research fellow with the Development Research Centre under the State Council.

China has always given key attention to tax collection from these people, but the existing personal tax system has met with frustration because of increasingly complicated income sources, he said.

Statistics indicate that 80 percent of the country's 51.1 billion yuan (US$6.2 billion) in personal income tax collected last year was from wages and salaries of ordinary people. The high-income people, who make up 8.7 percent of the total population but hold more than 60 percent of the country's total bank deposits, contribute less than 20 percent to the national income tax coffer.

"Some high-income earners evade payment of taxes,'' Zhang said, "while at the same time, the gap between the rich and the poor is widening."

According to investigations, the Gini Coefficient, an international index used to measure income distribution, stands at 0.458 in China, greater than the international warning line of 0.4, meaning that the Chinese society has entered a zone of income distribution inequity.

Social stability and, in particular, economic development will be affected, if the problem of the income gap is not resolved, Zhang said.

"China needs to improve its personal income tax system to help adjust income distribution in society,'' Zhang said.

Zhang Peisen, a senior researcher with the Taxation Research Institute under the State Administration of Taxation, said the current categorization of individual income taxation needs to be replaced with a more unified system.

China's individual income tax rates fall into 11 categories based on income source, which neglects control over the total annual income, he said.

He suggested that the system be improved by unifying relatively tractable and regular categories including wages and salaries and individual business income as well as asset leasing and transfer.

But it is impracticable to fully unify all 11 categories at present, because of the lack of necessary technological and legal preparation, he said.

A healthy environment for taxation should be created to pave the way for individual income taxation, he said.

On the other hand, the basic monthly income for taxation should be higher than the present 800 yuan (US$96), he said.

This base was first established in 1981, when the living standards of common residents were relatively low, he said.

However, China's reform and opening up policies in the past decades have created miracles, and present-day residents with monthly incomes of less than 600 yuan (US$72) are considered to be in the low income category, he said.

(chinadaily.com.cn 06/18/2001)