On August 31, the draft of the personal income tax amendments that received much attention was approved by the Fifth Session of the 13th National People's Congress Standing Committee and will be fully implemented on January 1, 2019. Vice Minister of Finance, Cheng Lihua, said at the press conference that “the standard of the 5000-yuan threshold is not fixed. In the future, dynamic adjustments will be made in combination with the deepening of personal income tax reform and the changes in the level of basic consumption expenditure of urban residents.”
The revision of the tax law covers the raising of basic deductions, the addition of special deductions, the optimization of the tax rate structure and the adjustment of the tax brackets. Once the expenditures that on education, medical care, housing, and old-age care have been set as special deductions have been raised, they have received extensive attention. However, the corresponding supporting measures and specific implementation details are still to be determined. Cheng Lihua said that according to the tax law authorization, the State Council will make specific provisions on the scope, standards and implementation steps of the deduction, and initially consider setting a certain limit or quota standard for special deductions. Liu Zhengkui, member of the National People's Congress Financial and Economic Committee also said that in determining the specific scope and standards for special additional deductions, in addition to clear and principled provisions, it should also be easy to operate, avoid cumbersome procedures, and prevent fraud.
This tax reform has achieved a major shift from a classified tax system to a combination of comprehensive and classified personal income tax systems. The new tax law stipulates that from January 1, 2019, three items of labor remuneration, remuneration and royalties will be combined with wages and salaries to calculate tax, that is, the syndrome tax will be imposed. According to the report of the macro research of CITICS, in general, the global tax reform trend is “wide tax base and low tax rate”. For the direction of future personal income taxation, whether it is comprehensive accounting or a combination of comprehensive and classified, it is necessary to consider the efficiency and fairness as much as possible.
Although the new tax law will not be officially fully implemented until January 1 next year, during the period from October 1 to the end of this year, the tax cuts brought by the 5,000-yuan threshold will be implemented first. In particular, the tax cuts for low-income earners are much larger than those of high income earners. For example, in the case of a monthly income of 6,000 yuan (after deducting social insurance and house fund), in the past, it used to cost $145 a month, but after October 1 it will cost only $30 a month. The reformed tax bill is only 20% of the original amount. For high-income earners with a monthly income of 50,000 yuan (after deducting social insurance and house fund), the monthly tax payment is 11,195 yuan, and after October 1, the monthly tax payment is 9,090 yuan, and the new tax payment is 81% of the original amount. It is not difficult to find that although the high-income people have a relatively large amount of tax reduction, the tax reduction rate is far less than that of low-income people.
Although the tax reform seems to benefit the general public, since the news that “social insurance must be paid according to actual wages after tax reduction” was transmitted, many SME employees expressed concern that the actual wages will actually decrease. Recently, the State Administration of Taxation announced that since January 1, 2019, the tax authorities have uniformly collected all social insurance premiums. This further confirms that social insurance can no longer be paid according to the minimum wage standard, and the base of deduction must be based on actual wages. At present, some companies do not pay social insurance for employees based on their actual wages, but pay according to the local minimum wage. Therefore, after the tax reform, it is very likely that the wages of most of employees will be less than before the tax reduction.