Jingyi Wang and Wilson W.S. Chow
Hong Kong Law Journal
2021, Vol. 51, Part 1 of 2021, pp. 249-272
Abstract: China’s 2018 individual income tax (IIT) law reform introduced itemised deductions, increased the standard deduction and expanded lower tax rate bands. On the one hand, this may help reduce the income tax burden for the relatively low-income group, but, on the other hand, the tax base of IIT would be further reduced, which may also reduce the redistributive effect of income taxation. However, the dominance of income tax extracted from wages and salaries remains the same. This may be related to the different treatment of income from labour and income from capital, which benefits those with more financial resources and thus discriminate against the less prosperous. Income from employment is also subject to strict tax administration. This article evaluates the sufficiency and equity of the reformed IIT law in China. Given that the Chinese government intends to gradually increase the proportion of direct taxation in its total tax revenue, the fairness of its income tax system should be one of the prioritised areas for any future reform.