个人所得税的公平性体现

40THE CHINESE ECONOMY

The Chinese Economy, vol. 39, no. 2, March–April 2006, pp. 40–56.

© 2006 M.E. Sharpe, Inc. All rights reserved.

ISSN 1097–1475 / 2006 $9.50 + 0.00.

HOWELL H. ZEE AND FARHAN HAMEED

Reforming China’s Personal

Income Tax

Abstract: This article derives the distribution of wages in China on the basisof the Pareto distribution, and employs it to simulate the revenue and dis-tributive consequences of various options of restructuring the personal in-come tax schedule as applied to wage income. The obtained simulation resultsare interesting and plausible and could thus inform policy deliberations onreforming the personal income tax in China.Reforming China’s personal income tax (PIT), which was introduced in itspresent form in 1994, has been a focus of active research and policy debateswithin China in recent years. In a press conference held by the InformationOffice of the State Council in January 2004, Xie Xuren, commissioner of theState Administration for Taxation, indicated that PIT reform would be part ofa comprehensive tax reform program being launched in 2004 that would alsoinclude reforms of the value-added tax and corporate income tax.1While all aspects of the PIT are possible targets for reform, the focus ofthis article is on its rate schedule as applied to wages and salaries. Since nodisaggregated data on PIT revenue collection by rate band are yet availablein China, the article shows how the Pareto distribution could be used to assistpolicy deliberations on the restructuring of such a schedule. The purpose of

the article is not to make specific reform recommendations, but to illustrate

Howell H. Zee is at the Fiscal Affairs Department, International Monetary Fund(IMF), Washington, DC. Farhan Hameed is also affiliated with the IMF.

The views expressed herein are those of the authors; they do not necessarily reflectIMF policy and should not be reported as representing the views of the IMF. Theauthors thank Ray Brooks and Reed Shuldiner for their helpful comments. The usualdisclaimer applies.

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the possible value of applying a particular but plausible analytical model tohelp address a problem that would otherwise be difficult to analyze in viewof the data limitations. A brief history and the present structure of China’sPIT, together with its revenue collection in 2002, are first provided in thenext section, followed by a description of the analytical model in the thirdsection. The fourth section illustrates the way the estimated parameter valuesfrom the analytical model could be used to experiment with alternative rateschedules, and also discusses their economic consequences. Some brief re-marks in the final section conclude the article.

History, Present Structure, and Revenue Collection of

PIT History

History

The present PIT in China has its roots in three different taxes on personalincome that were introduced in the 1980s:2

The PIT, which became effective in 1980 (henceforth the old PIT), wasimposed on specific categories of worldwide income of residents and in-come of nonresidents sourced in China. Wages and salaries were subject totax on a six-band progressive marginal rate schedule ranging from 5 percentto 45 percent, with a basic monthly allowance of RMB800.3 All other cat-egories of taxable income, namely, (1) income from personal and profes-sional services, (2) royalties, (3) interest (except on saving deposits in statebanks and credit cooperatives), dividends, and other distributed profits, and

(4) rental income, were taxed at a flat 20 percent rate.

The individual commercial and production enterprise (ICPE) incometax,4 which became effective in 1986, was imposed on the business incomeof ICPEs according to a ten-band progressive marginal rate schedule rangingfrom 7 percent to 60 percent. In addition, a surtax of 10 percent to 40 per-cent, determined by the local authorities, was imposed on the tax liabilityderived from taxable income in excess of RMB50,000.

The personal income regulatory tax, which became effective in 1987,was imposed on the following specific categories of worldwide income ofresidents (who would no longer be subject to the old PIT):5 (1) wages andsalaries; (2) income from contracted or leased operations; (3) income frompersonal and professional services; (4) remunerations of authors; (5) royal-ties; (6) interest (except on saving deposits in state banks and credit coopera-tives), dividends, and other distributed profits; and (7) rental income. Theaggregate income from categories (1) through (3) and (7) was subject to a

five-band progressive marginal rate schedule ranging from 20 percent to 60

42THE CHINESE ECONOMY

percent, with a basic monthly allowance of four times the stipulated basic(average) monthly wage (RMB100–RMB115) that varied across four speci-fied regions. Income from categories (4) through (6) was taxed at a flat 20percent rate.

Present Structure

The present PIT law, which was promulgated in 1993 (and became effectivein 1994) as an amendment to the old PIT law, is in effect an amalgamation ofthe above three taxes, covering both residents and nonresidents. At the sametime, further adjustments were made to the tax treatments of, and applicabletax rates on, the different categories of taxable income, which no doubt con-tributed to the complexity of the present PIT, whose structure can be brieflysummarized as follows:6

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