Reform And Optimization Of Our Country's Individual Income Tax Law Under Guidance By The Ability-to-pay Principle Of Taxation

The Ability-to-pay Principle of Taxation was discussed a lot in the country these years, scholars also hold different opinions. This principle is derived from the Constitutional Principle of equality, in pursuit of taxation on a fair and justifiable basis. Income can be taken as the most suitable criterion to reflect taxpayer's ability in the angle of economics. Thus, no matter in academia fields or among different countries (regions), when making tax legislation, the guiding position of the Ability-to-pay Principle of Taxation in the field of Income Tax has been unanimously recognized. Since 1799 when individual income tax was adopted in the United Kingdom, it has gradually spread to the world. Meanwhile, in many countries (regions), it holds a very important central role in their tax systems. Although the Ability-to-pay Principle of Taxation was not stated clearly in the legislation in China, in practice, individual income tax has always been trying to implement fairness of this principle. Since it was implemented in 1980, China's individual income tax has played an increasingly important role in mobilizing financial resources, regulating the distribution of income, etc. On the other hand, restricted by current legislative technology, tax consciousness and level of tax collection and management, even after five revisions, our Individual Income Tax Law still requires further reform and optimization compared with the Ability-to-pay Principle of Taxation.This article is divided into four parts.The first part explains the Ability-to-pay Principle of Taxation with theories of jurisprudence. The author explains the principle from four aspects, namely: definition; historical origins; jurisprudence foundation and general applications. Firstly, the author defines the principle via explaining concept, content, purpose and ability. Then, using the "fair" concept to bring in the controversy between taxation's benefit theory and ability theory, points out that the ability theory, which later took place of benefit theory, also exceeded the economics scope, and raised up to the level of law legislation, was finally developed into the Ability-to-pay Principle of Taxation which can best achieve fairness on taxation. Regarding the jurisprudence foundation, the author takes Rawls Justice's Fairness as an example, based on the equality principle, the difference principle and the compensation principle, the value of law and justice 61 embodied in the tax system design is derived, also points out that the criterion of taxation fairness and justice also need consideration of social, economic goals, and can be explained using the principle of the modern constitution, and State Taxation regulation. After introducing academia fields'different opinions on the Ability-to-pay Principle of Taxation, the author points out its fundamental and guiding role in the basic income tax law are unanimously recognized by scholars.The second part describes the application of the Ability-to-pay Principle of Taxation in Individual Income Tax Law in the United States, Germany, Japan and Taiwan region of China. The author selects and analyzes some system and rules of the Ability-to-pay Principle of Taxation, which could best reflect the characteristics of those above-mentioned countries (regions), introduces the Individual Income Tax Law of U.S. from the aspects of the taxpayer's identification category, integrated assessment model adoption, the provisions of pre-tax deduction as well as the frame of progressively refund on the increasing tax deduction amount; introduces the Individual Income Tax Law of Germany from aspects of issuing tax card according to individual's tax burden level, usage of a classified comprehensive income tax system and implementation of a balanced review on the annual tax burden; introduces the Individual Income Tax Law of Japan from the different nature of the distinction between the affordability of proceeds, tax deductions reflecting the "human duty" of the characteristics, the rate of structural reforms to eliminate tax "hollowing out" phenomenon and other aspects; and introduces the Individual Income Tax Law of the Taiwan region of China through explaining"two-in-one"of the income tax system reform, the price index-linked tax mechanism, consolidated net income tax system.The third part analyzes the history development and current situation of China's Individual Income Tax Law. The author first reviews the history f China's Individual Income Tax Law, focuses on the five amendments of China's Individual Income Tax Law, and especially explains the changes which were made fully in the pursuit of the Ability-to-pay Principle of Taxation. Meanwhile, using real examples, analyzes from aspects of the tax, income tax items and tax rate setting, pre-tax deduction scope, methods and standards, double taxation, tax units, reveals the existing problems in our Individual Income Tax Law when trying to pursuit the Ability-to-pay Principle of Taxation. Classification of China's current income tax system is difficult to achieve horizontal and vertical tax equity; narrow covered tax base, complicated and unscientific tax rate; the scope of pre-tax deduction is too small, curing methods, cost deduction standards too low, it is not associated with the price index and the level of consumption, not taking into consideration of regional differences, and the application of the additional deduction for expenses resulting in "super-national treatment"; individual income tax and corporate income tax on dividends and dividend income (corporate profits derived from) caused the problem of double taxation; to "isolation" of the personal tax returns as the unit could not meet the requirements of substantive fairness.The fourth part describes how to reform and optimize China's Individual Income Tax Law with reference to the Ability-to-pay Principle of Taxation. In this section, guided by the Ability-to-pay Principle of Taxation, learned from the advanced experience of foreign countries as well as Taiwan region of China, the author explores how to reform and optimize of China's Individual Income Tax Law from aspects of tax model, taxation object, applicable tax rate, before-tax deduction, tax withheld, tax declaration and collection, etc. For the tax model, the author believes that the 11 types of China's current income project should be integrated using classification synthesize income tax principle. Meanwhile, suggests easing application of progressive tax rate for the certain special items. For the taxation object, the author recommends using the anti-enumerate method from the United States to distinguish between non-taxable income and tax-free income, and explains on the taxation on welfare gains and illegal gains. For the applicable tax rate, it is proposed on the basis of progressive tax rate applicable to "progressive disappearance of the structure", together with price index-linked mechanism. For the before-tax deduction, includes the cost deduction, living cost deductions, special deductions, and salary income applicable to the design of the special deduction regressive. Ways of deduction could be standard deduction or itemized deduction, considering our country's current situation, for the time being, we recommend using standard deduction method when deducting certain fees, when conditions permit, we then gradually transit to the itemized deduction. For the standard amount setting, suggests it should be as close as possible to the actual tax burden capacity and associated with the price level and regional differences, abolish "super-national treatment". For the tax withheld, uses calculation based deduction method to eliminate dividends and bonuses of double taxation issue. For the declaration unit, suggests bringing in the family declaration mechanism, while still keeps the "two-way reporting system" combined by deduction and self-declaration. Finally, the author brings forward that the development of the relevant systems should be speeded up, thus to make sure the reform and optimization of our Individual Income Tax Law wouldn't become water without a source, a tree without roots.