A Research On The Mystery Of China’s Individual Income Tax

Since China’s reform and opening,the world has witnessed China’s economic growth miracle.China’s GDP has increased from 365.02 billion yuan in 1978,to63.65 trillion yuan in 2014,which ranked second in the world.Along with economic growth,China’s tax structure has been changing;the proportion of income tax has been increasing.Even so,turnover tax is still China’s main tax;income tax shares a relatively minor position.The proportion of China’s individual income tax on total tax revenue has been accounted for around 6%,far lower than other countries.China’s economic miracle has not fully realized in individual income tax.In a sense,there is a“mystery of China’s individual income tax”.This paper taking China’s individual income tax as research object,trying to explain the mystery of China’s individual income tax from both theoretical and empirical 、 economical and political aspects.The specific contents and main conclusions are as follows:The first chapter introduces the significance and background of this article;summarise the researches related to individual income tax from five different angles,including growth path and tax potential,and then make a brief review.Combined with the existing research,this chapter proposes research methods and ideas,and introduced the data involved in the paper.Finally,this chapter also put forword the innovation of this study and direction for further research.The second chapter sorts out the establishment and evolution of individual income tax,and summarized five stylished facts of China’s tax structure: individual income tax share increased and then decreased;the proportion of China’s individual income tax revenue on total tax revenue,not only lower than the countries that GDP is equivalent of Chinese economy,but lower than the countries that GDP per capita is equivalent of Chinese economy;the proportion of payroll tax on individual income tax is rising;China’s total tax revenue more dependent on turnover tax,rather than direct tax;the statutory tax rate of China’s individual income tax is not low.The third chapter referenced the classic optimal income model,first briefly introduced the theoretical model,and analyzes the premise of the theoretical model.Based on the benchmark model,we studied five deviations from the reality of China and the theoretical model,respectively,which were: China’s tax policy decision-making process;the income distribution behind economic growth;taxationmotivation;the status of individual income tax in China’s public financing resources;and China’s individual income tax evasion problems.Specifically,although according to the theoretical model,the size of government expanded with the expansion of the electorate and economic growth.However,since the Chinese special tax decision-making process,the “failure” of redistributive policies,the priority to develop industry,the dependence on land resources,debt,turnover tax,etc.,and a large-scale tax evasion,China’s reality largely diverged from the benchmark model.The decisive factor in determining the size of tax is tax base,in the next two chapters,this article empirically analyzes China’s individual income tax from two tax bases: narrow tax base,“labor income” and a wide tax base,“China’s economic structure”;In addition,for a country,the tax base does not automatically translate into tax income,it requires a certain number of institutional investments and effective government efficiency,and therefore,after analyzes China’s individual income tax path from an economic point,this article also explained it from the political perspective,which are the content of Chapter 6 and Chapter 7.Specifically,this paper draws the following conclusions:According to chapter 4,the dropping of labor income share of national income,income growth lags behind economic growth,is the main reason for the “mystery of China’s individual income tax”.According to our study,there is a U-shaped relationship between China’s economic growth and labor income share,and also a U-shaped relationship between China’s economic growth and individual income tax ratio.When the per capita GDP reached 67,161.02 yuan,economic growth will begin positively promote the individual income tax ratio.If China’s per capita GDP remained an annual growth rate of 7%,from the beginning of 2020,the fruits of economic growth will begin to be reflected in the individual income tax.According to chapter 5,there were a large number of informal economies in China’s economic growth,which is another answer for “mystery of China’s individual income tax”.From the point of view of informal employment,informal employment in China has increased from 39912 million in 1995,to 59258 million in 2014.In 1995,the size of the informal economy was 2.134494 trillion yuan,and accounting for34.92 percent of GDP,by 2014,China’s informal economy was 33.385365 trillion yuan,accounting for 52.48 percent of GDP.From 1995 to 2014,the annual growth rate of China’s informal economy is 15.88%.Chapter 6 draws the following conclusions: another answer for “mystery of China’s individual income tax” is the low tax effort of Chinese tax authorities.International comparison has showed that,although Chinese fiscal capacity investment was high,but tax effort is lower than other countries.It is worth noting that,increasing tax effort may have some “side effects”,especially in less developed areas.Increasing tax effort may bring the rising of the current year’s individual income tax,but with the price of plundering the next year’s tax revenue,the long-term tax structure will not be changed by shifting tax effort.Chapter 7 draws the following conclusions: China’s dependence on other turnover tax and non-tax revenue did not reduce the incentives to collect individual income tax,which may because,the local government’s lack of revenue.There is a negative effect of corporate income tax on individual income tax.The proportion of corporate income tax of total tax revenue increased by 1 percent,the ratio of individual income tax will decrease by 0.013 percent.Chapter 8 summarizes the main conclusion of this paper,and proposes the corresponding policy suggestions.