Research On Individual Income Tax (IIT) Reform In China With A Function Analysis Approach

China’s current personal income tax regime which is based on a schedulartax system has not been established for a long time-on the Third Session of the Fifth National People’s Congress held in 1980,China’s IIT Law was approved.Later in 1986,the State Council promulgated Provisional IIT Measures for Urban and Rural Industrial and Commercial Householdsand Provisional Measures on Personal Income Adjustment Tax.After a series of critical amendments,including the industrial and commercial tax reform in 1993,the modifications on interest tax,expense deduction standard and tax rates,China’s IIT regime has got its shape as it is today.Meanwhile,with the rapid growth of IIT income since 1993,IIT has demonstrated its important function to raise fiscal revenue,redistribute social wealth,regulate economy,etc.However,with the increasing resident income and diversification of income types and sources,the scheduler tax system now unveils its shortcomings and cannot meet the increasing needs of macroeconomic control.Administration wise,since the current tax collection and administration mode is mainly designed for enterprises rather than individual taxpayers,the lack of supporting policies for IIT administrationhinders IIT’s proposed function.Therefore,a substantive reform of the IIT system and collection mode is necessary to enhancethe function of IIT.The Decision of the Central Committee of Communist Party of China(CPC)on Major Issues In Comprehensive In-Depth Reform(the Decision)made on the Third Plenary Session of the Eighteenth CPChasrecognised the fiscal system an important pillar of state governance.In particular,a scientific fiscal and taxation system can helpoptimisethe allocation of resources,maintain market unification,promote social fairness,and achieve sustaining stability.Since tax is an integrated part of the fiscal system,with the new interpretation of the state governance function of the latter,the function of taxation should also be expanded from purely regulating economy to boosting various parts of society such as culture,politics and ecology,from raising revenue and macro control to participating in state governance.Among various taxes,IITserves a more comprehensive purpose because of its broad tax base,unique tax system,and direct tax collection from individuals.Therefore,apart from raising revenue and adjusting and steeringeconomy,IIT has its distinctive advantage in adjusting income distribution.As an important part of the modern tax system,the ongoing IIT reform indicates China’s effort to improve its state governance.For example,the unified IIT data baseconsolidatingnatural persons’ information(including the third party information)wouldfacilitate the state governance with mega data;the tax administration mechanism based on taxpayers’ self-assessment,and tax authorities’ audit and tax credit management would inspire the interaction between citizens and the state,improve citizen consciousness,and further modernize China’s state governance.Hence,withcomprehensive deepening of the reform,it is imperative to recognisethe function of IIT and comtemplate the IIT reform from a functional analysis perspective.It is not only the requirement to improve IIT administration system but also the need to drive the modernization of state governance.This paperstarts from summarisingthe theory of IIT function,and then analysesthe current functions of China’s IIT systemwith proofed evidence.Taking into consideration the overseas experience and reform trend,with the aim to enhance the IIT function,the paper thenproposes suggestions on the reform of China’s IIT system and administration.The paper consists ofthe following eight chapters:Chapter one: Introduction.This chapter explains the background of this topic and the purpose of studying it,summarisesthe references on IIT function and IIT reform in China and abroad,clarifies the research method of this paper,and puts forward the innovation and the deficiency of the research method.Chapter two: Theoretical analysis of IIT function.This chapterforms the theoretical cornerstone of the whole paper.It elaborates the historical evolution of IIT function theory andsummarisesthe main IIT function theories,followed by the analysis ofmodern IIT functions and the main influencing factors.Chapter three: Analysis of the current functions of China’s IITsystem.This chapterfirst reviews the development of IIT regime in China.Following the theories in Chapter 2,this chapter analyses the current functions of China’s IIT system from a practical perspective,including the function of raising revenue,adjusting income distribution and steeringeconomy.To sum up,the current IIT system’s functions have been fulfilledto some extent,though there still exists some space to improve.This chapter then continues to discuss the reason of the inadequate function.Chapter four: The development of IIT function abroad and relevant reforms.This chapter introduces the changes and trend of the IIT function in other countries in terms of tax system and collection and administration.Chapter five: Proposed function of China’s IIT system and the discussion on the reform target.This chapter analyses the factors affecting China’s IIT function,including economic and social development,the government’s macroeconomic regulation and governance,tax structure adjustment,etc.Based on these factors,this chapter proposes the function of China’s IIT and the reform target,as well as the strategies to realise the target.Chapter six: Research on China’s IIT system reform based on the function analysis.This chapter reiterates the function of IIT system,proposes the general idea of a composite IIT system reform,consisting of both comprehensive and schedulartax system,as well as the concretereform strategy and suggestions with a view to enhance IIT’s function of raising revenue,adjusting income distribution andsteering economy.Chapter seven: Research on China’s IIT administration reform based on the function analysis.This chapter firstly points out that IIT administration reform as a whole is the prerequisite to realise the proposed IIT functions,especially its state governance function.And then this chapter provides suggestions with respect to the reform including establishing the tax collection and administration mode on natural persons,improving the hardware to facilitate the collection,fosteringtax awareness and promoting tax compliance,etc.Chapter eight: Conclusion.This chapter reinforces the main points of this paper.On the ground that the function of the IIT system should be multiple,concrete and considering the trait of heritage,the chapter summarisestheproposed IIT function and suggested reform strategies.