The reconsideration of income tax on low earners has resulted in the threshold for the tax to be applied being raised by 1,500 yuan ($232), 500 yuan more than originally proposed, and taking an estimated 60 million wage earners out of the tax system. From Sept. 1, tax will start being due on incomes of above 3,500 yuan a month, up from 2,000 yuan a month. In addition the number of tax bands is being cut to seven from nine, with the rate on the first band being cut to 3% from 5%.
The changes lift the threshold above the average monthly wage for salaried workers. The percentage of earners liable for tax will fall to 7.7% from 28%, costing the government 160 billion yuan, according to Wang Jianfan, vice director of the Ministry of Finance’s taxation department. Some of that will be recovered by raising taxes on higher earners. More than 82,000 members of the pubic commented on the original tax cut proposal with two our of three wanting an even higher threshold than finally agreed on.