Taxation authorities may bring about sweeping reforms in the personal income tax system to lower the risk of tax evasion and to simplify calculations.

Under the current system, personal income tax is spread across 11 different categories, such as salary, rental income and freelance earnings, each with different thresholds and rates.

"A unitary tax scheme could solve the problem," a State Administration of Taxation (SAT) official, who wish to remain anonymous, told China Business News.

The current scheme allows high-income earners to manipulate the system to avoid fair taxation by spreading their income across the categories to avoid detection, he added.

A small minority of the country's top earners filed their tax returns before yesterday's deadline, a new measure by SAT targeting those earning more than 120,000 yuan (US$15,400) a year.

According to the latest SAT statistics, 1.37 million people across the country had filed their income by March 30, this figure representing only 15 percent of the 6-7 million high-income earners who were required to do so.

Furthermore, SAT sources revealed tat the number of income tax bands will be slashed from nine to five with the top rate for each being slashed.

Currently, workers are taxed according to a progressive income system ranging 5 to 45 percent on incomes of over 1,600 yuan (US$206) per month. The changes should come into effect by 2010.

According to Gao Peiyong, an expert in finance at the Chinese Academy of Social Sciences, the requirement on income tax returns sets the foundation for a unitary scheme. However, experts have called for slow progress since any revision of the tax scheme would need to reflect the varying conditions of different brackets of taxpayers.

An Tifu, a retired professor in finance with Renmin University of China, advised that taxpayers be granted deductions for housing loan repayments, children's education and medical costs, as is the norm in many developed economies.

Last year, personal income tax collection totaled 245.2 billion yuan (US$30.65 billion), up 17.1 percent year-on-year, SAT figures show.

(China Daily April 3, 2007)