The central government decided yesterday to double the minimum salary for paying personal income tax to 1,600 yuan (US$200) a month starting on January 1, 2006.
The minimum salary is 100 yuan higher than the proposed 1,500 yuan cutoff point in a draft amendment to the personal income tax law, an indication that lawmakers considered opinions aired at a previous public hearing.
"We learned from the hearing that people think the cutoff point should be even higher," said Lou Jiwei, vice-minister of finance.
"But in that case, fiscal revenue would decrease too much and our capability to support the growth of the western regions would be impaired."
According to Lou, more than 50 percent of central finance goes to transfer payments to western regions.
He said that raising the cutoff point from 800 yuan to 1,500 yuan will reduce fiscal revenues by more than 23 billion yuan each year. Raising the minimum to 1,600 yuan will incur an additional fiscal loss of more than 5 billion yuan a year.
"After the adjustment of the cutoff point, the number of taxpayers will drop by more than half. It will live up to our legislative principle to care for the interests of low and medium-income groups," said Lou.
The current standard of 800 yuan was instituted in 1993, when only around 1 percent of the employed people earned more than 800 yuan. In 2002, the ratio jumped to around 52 percent.
Draft amendments to the personal income tax law set the cutoff point at 1,500 yuan. The Standing Committee of the National People's Congress, China's top legislature, decided to hold a public hearing on the issue as it is of widespread concern.
The hearing, held in late-September, was the first legislative hearing ever held by the NPC Standing Committee.
Twenty people were chosen out of 4,982 applicants to air their views at the hearing. Among them, six approved of the proposed 1,500 yuan point; 12 favored raising the minimum level and two said it should be lower.
After studying the views, the NPC Standing Committee reached the opinion that the proposed 1,500 yuan point was basically appropriate. But it could be raised still a little higher to better help the low and medium-income groups and account for a rise in living costs in the future, said an NPC Standing Committee member.
"The final result takes into account both public opinion and the fiscal situation."