The need for tax cuts

0 CommentsPrint E-mail China Daily, March 9, 2010
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The report that the Ministry of Human Resources and Social Security and the Ministry of Finance are examining the possibility of raising the personal income tax baseline won't impress consumers all that much.

Compared with the central government's sense of urgency to boost domestic spending, the slow response of tax authorities to growing public calls for income tax cuts seems inadequate if not insensitive.

There have always been calls to raise the tax baseline, which was most recently raised to 2,000 yuan a month two years ago.

In absence of a regular adjustment mechanism to reflect changing income and price levels, the current personal income tax baseline can no longer serve its original goal of taxing mainly the very rich while exempting most taxpayers. The steady income growth fueled by recent economic growth should have expanded the base for personal income tax considerably.

But the current problem is more about how quickly the tax policies will be properly reformed.

At a time when China is shifting away from its dependence on investments and exports, tax authorities should not collect more taxes from domestic consumers, as tax incentives for income-earners will be needed more than ever.

A substantial hike of the baseline for personal income tax will never come too early if consumer spending is to help fuel China's growth.

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