个人所得税的公平性体现(2)

There are eleven categories of taxable income: (1) wages and salaries(taxable monthly); (2) business income of ICPEs (taxable yearly); (3) in-come from contracted or leased operations (taxable yearly); (4) income frompersonal or professional services (taxable upon receipt if occasional, butmonthly if continuing); (5) remuneration of authors (taxable per occurrenceof publication); (6) royalties (taxable per issuance of licensing rights); (7)interest, dividends, and other distributed profits (taxable upon receipt);7 (8)rental income (taxable monthly); (9) capital gains from real and financialassets (taxable per realization); (10) incidental income (taxable upon receipt);and (11) other categories as specified by the Ministry of Finance.

Allowances and deductions for each category of taxable income are speci-fied separately. Most notably, a basic monthly allowance of RMB800 is pro-vided to domestic residents for category (1) income.8 There are no otherpersonal allowances available under this income category.9

Category (1) income is subject to tax according to a nine-rate progres-sive schedule, as shown in Table 1.

Separate progressive schedules are applied to income categories (2), (3),and (4). Category (5) income is taxed at a flat rate of 14 percent, while in-come in all other categories is taxed at 20 percent (except rental income frompersonal residential properties, which is taxed at 10 percent).

Revenue Collection

While on a rising trend in recent years, revenue from the PIT is still fairlyinconsequential in China at present. As shown in Table 2, PIT revenueamounted to only about 1.2 percent of gross domestic product (GDP) (less

than 7 percent of total tax revenue) in 2002. The bulk of this revenue was

MARCH–APRIL 200643

Table 1Nine-Rate Progressive Schedule of Category (1) Income

Monthly taxable income (net of basic monthly allowance)Marginal tax rate (%)Not exceeding RMB5005Above RMB500 but not exceeding RMB2,00010Above RMB2,000 but not exceeding RMB5,00015Above RMB5,000 but not exceeding RMB20,00020Above RMB20,000 but not exceeding RMB40,00025Above RMB40,000 but not exceeding RMB60,00030Above RMB60,000 but not exceeding RMB80,00035Above RMB80,000 but not exceeding RMB100,00040Above RMB100,00045

derived from three categories of income: wages and salaries (46 percent oftotal), interest and dividends (32 percent), and business income of the ICPEs(15 percent).

The bulk of the PIT revenue accrued to the provincial governments as partof the comprehensive tax reform that took place in 1994,10 an arrangementthat lasted until 1999, when it was stipulated that the PIT revenue derivedfrom deposit interest would accrue to the central government. A change tothis revenue sharing occurred in 2002, when it was decided that the excess ofPIT revenue (inclusive of the revenue from deposit interest) above the 2001level was to be shared between the central and provincial governments—inthe proportions of 50 percent and 50 percent in 2002, and 60 percent and 40percent in 2003.

Application of the Pareto Distribution

A central theme in reforming China’s PIT will undoubtedly be simplificationwith respect to both its base and rate schedules. The base issue will not bepursued further in this article.11 With regard to the rate schedules, clearly themost important schedule on which to focus one’s attention is the one that isapplied to wages and salaries. To analyze the revenue and distributive conse-quences of restructuring this schedule, detailed data on the PIT revenue col-lected by rate band are needed. If the restructuring is free to determine newband widths that bear no relationship to existing ones, data on national wagedistribution would also be necessary. Neither type of data at a sufficiently

disaggregated level is currently available in China. The extent of available

44THE CHINESE ECONOMY

Table 2

Composition of PIT Revenue, 2002

Amount inPercent

RMB bn of total

Wages and salaries56.146.4Of which: taxable at ≥ 25 percent9.78.0Business income of ICPEs18.515.3Interest, dividends, and bonuses38.431.7Of which: deposit interest30.124.8Other income8.16.7Total121.1100.0

Memorandum item

Total PIT revenue

As percent of total tax revenue6.9

As percent of GDP1.2

Source: State Administration of Taxation.

disaggregation of PIT revenue data is shown in Table 2: only revenue col-lected from the 25 percent rate band and above can be separately identifiedfrom the total in 2002 (this is the only year for which such a breakdown isavailable).

Lacking the requisite distribution data, the underlying wage distributionin China could be constructed on the assumption that it follows the Paretodistribution, which has been shown to be a reasonable assumption in manyempirical studies on income distribution in a large number of developed anddeveloping countries.12 The constructed distribution could then be used tosimulate the collection of PIT revenue by rate band of the progressive PITschedule applied to wages and salaries. The parameters of the model areestimated in such a way that the constructed distribution produces an out-come that is consistent with both the aggregate PIT revenue collection andthe subtotal amount collected at 25 percent and above in 2002.

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