China plans income-tax cuts
It will be the first major change to system in seven years
Stimulus from the US tax cuts passed last November is expected to boost economic growth by about three-quarters of a percentage point in 2018 and 2019, the Federal Reserve said in May, which is why the S&P 500 index finished just 3.8% below its record high on Tuesday, despite rising trade tensions with China.
Now Beijing is looking at similar reforms. It is considering the first major change to the country’s income-tax system in seven years. It plans to lift the tax-free threshold on personal income from 3,500 yuan ($540) a month to 5,000 yuan a month. It will permit deductions on top of that for education, health care and housing costs, Xinhua reported on Tuesday.
It is a policy direction Beijing can well afford to move in. Unlike the US federal government, which raises about 80% of its taxes from individual earnings via income and payroll collections, Beijing is largely bankrolled by corporate and sales taxes.
Individual income taxes amounted to about 6.6% of the 900 billion yuan ($139 billion) collected in 2015, according to government figures.
Personal-income-tax revenues have been growing rapidly – 19% last year – providing ample room for cuts.