The recently completed "Income Distribution and Tax Policy ofChina" mentions that the current personal income tax policyneeds adjustment, which has raised great concern from commonChinese. The report, drafted by the Fiscal Research Institute underthe Ministry of Finance, has been handed to relevant departments asa reference for decision-making. Following is an interview by theGuangzhou Daily reporter with Dr. Bai Jingming, chiefcomposer of the report.

Reporter: Is the current tax threshold (800 yuan or US$96.6)reasonable?

Bai: The tax threshold, set in 1981, is obviously too lownowadays. In the past 20 years, the disposable income of theChinese, especially those urban dwellers, has been greatly raised.The government's tax policy is an important measure to achieve thegoal of fostering middle-income group set in the report to the 16thCPC Congress.

Reporter: What's your ideal tax threshold? Is it feasiblefor different regions to implement different tax threshold and taxrate?

Bai: If there's a uniform tax threshold, I think it shouldbe at 1,200 yuan (US$145). Actually, the minimum tax threshold inBeijing has been raised to 1,000 yuan (US$120.8) for severalyears.

Data from the National Bureau of Statistics (NBS) show that someindustries have monthly salary exceeding 1,000 yuan (US$120.8), andsome even have their yearly salary exceeding 60,000 yuan (US$7248).However, the actual revenue, including extra incomes, is more thanthat. Research shows that it is feasible to adopt different taxthreshold and tax rate in different regions, but it needs morecoordinated measures in practice. For example, the currentcentralized tax system should be changed to a decentralized one;government should ensure expenditure in public welfare and encouragecitizens to enjoy the investment.

Reporter: Why does the report call for lowering the tax ratefor monthly salaries of 3,000 - 5,000 yuan (US$362-US$604)? Whattax rate do you think is the most suitable?

Bai: Both survey and statistics reveal that a monthly salaryof 3,0005,000 yuan (US$362-US$604) is the mark of middleincomegroup in China. If government imposes high tax rate on them, theconsumption and economic growth will be dampened.

Webelieve that these people who make 3,000-10,000 yuan a month(excluding welfare and the social security) should be placed tomiddle-income group. Although the group is only a small proportionof the population, their consumption power, like that in buyingcars, houses and travel, is huge. On the other hand, people withsalary of 3,000-5,000 yuan (US$362-US$604) account for most of themiddle-income group, therefore, it is necessary to lower tax rateto boost their consumption.

Personally, I think the tax rate for income between the taxthreshold and 5,000 yuan (US$604) should be 10 percent. It accordswith government's policy to foster middle-income group.

Reporter: The document suggests that tax should be levied onmiddle-grade and luxurious houses, but I wonder how you classifyhouses? Meanwhile, since house-buyers have already paid relevanttaxes and fees, how should the matter be handled in case there iscontradiction between the old and new tax policies?

Bai: Those self-employed and those who have fixed assetsusually own middle-grade or luxurious houses. However, theirratepaying is usually ignored. The tax imposed on middle-grade andluxurious houses can make up the tax losses.

The current real estate tax is only imposed on commercial houses.Its tax revenue has exceeded 50 billion yuan (US$6 billion) everyyear. Its growth rate in some regions is only next to that ofpersonal income tax.

However, before the tax is levied, three problems have to besolved: standardize house deal and punish business fraud, curbabused charge by property management companies; divide thevalue-added tax into some static taxes, cancel contract tax andstamp tax; the house-owners should hand in up to 1 percent tax ofhouse value, which should be evaluated every three years. The taxrate on luxurious house can be a little higher.

(China.org.cn by Tang Fuchun, July 3, 2003)