The Ability-To-Pay Principle Of Taxation And Reform Of Chinese Individual Income Tax Law

The ability-to-pay principle of taxation is used for equitable taxation, in which taxes are based on the income or resource-ownership ability of people to pay the tax. This normally leads to the view that as income or wealth increases, individuals should be charged higher taxes. On the other hand, the tax incidence of people with a lower ability-to-pay should be reduced. Although no consensus has been reached about whether the ability-to-pay principle shall be taken as a basic principle in Taxation Law, the principle indisputably plays that role in the field of Income Tax Law. From the aspect of the legal system, this principle reflects the equity value of law. Meanwhile, it also can positively assure both the vertical and horizontal equitability of income tax be realized in the legal system of tax revenue. Although we tried to maintain this principle in the Individual Income Tax Law of China from the beginning to the end, there are still some shortages and deficiencies due to the taxation level and legal environment. In light of the essence of ability-to-pay principal, this thesis puts forward some proposals about the mode of PIT system, the identification of taxpayer, the levying objects and the structure of tax rate. About the PIT of China, we should first give priority to comprehensive income taxation system, while the classification tax system is complementary. Second, increase the taxpayers and combine the family declaration and individual declaration. Third, consummate the objection of taxation by determining reasonable taxable income, which should cover the welfares and illegal incomes, and the scope of expense deductible, e.g. essential cost, livelihood cost and particular charges. Fourth, set up scientific and rational progressive tax rate with higher cutoff point, less tax brackets and lower tax rate.