Statistics from the State Administration of Taxation indicate that the country collected 38.4 billion yuan (US$4.62 billion) of personal income tax and 16.3 billion yuan (US$1.96 billion) of tax on interests of individual's bank deposits during the January-July period, an increase of 32 per cent and 132.2 per cent, respectively, compared with the same period last year.

"This suggests more loopholes in the collection of taxes have been sealed up,'' said Zhang Liqun, a senior research fellow with the Development Research Centre under the State Council.

It also suggests that urban and rural residents' income rose considerably, since tax on wages comprised more than 40 per cent of the total income tax, Zhang said.

However, China's personal income tax system has a long way to go before it will work as an important tool to adjust the income gap between the rich and the poor.

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 Chinese society has entered a zone of income distribution inequity.

The high-income earners, which make up 8.7 per cent of the total population and own more than 60 per cent of the bank deposits, contribute less than 20 per cent to the total income tax.

"Some high-income taxpayers evade taxes,'' Zhang said. "The country needs to beef up efforts to collect tax from these people.''

Meanwhile, the country needs to investigate how much an ordinary resident really earns, since some of them have "extra'' income sources, rather than wages and salaries.

When including "black'' income, the basic income for taxation -- which stands at 800 yuan (US$96.39) each month -- should be raised to a higher level.

Zhang said the current base income for taxation was firstly carried out in 1981, when the living standards of common residents were relatively low.

Zhang Peisen, a senior researcher with the Taxation Research Institute under the State Administration of Taxation, said China's individual income tax rates vary in 11 categories based on income sources, which neglects control over the total annual income.

He suggested unifying relatively tractable and regular categories -- including salaries, individual's business income, as well as asset leasing and transfer -- will improve the work.

However, Zhang said it is impractical at present to unify the 11 categories, due to lack of essential technological and legal preparation.

He added that a wholesome environment for taxation should be created to pave the way for individual income taxation.

(China Daily 08/22/2001)