Research On The Personal Income Tax Reform In China

Personal income tax is a kind of tax which is based on the individual taxpayer's various incomes. At present, personal income tax is collected all over the world and occupies a pivotal position in the tax system. By comparing the development histories of personal income tax of the United Kingdom, the United States, Germany and Russia, we can see that personal income tax experienced a way that changed from a provisional tax to a fixed tax. The main course of individual income tax changed from proportional tariff to promote tariff and the mode of tax also changed from classified to integrated. China's personal income tax law was born in 1980, and has become one of the four largest taxes. With the "Personal Income Tax Law" changes, the revenue of personal income tax rises year by year and has maintained a steady and substantial growth momentum to the state tax revenue.In general, as to the reform of personal income tax, we should combine the basic theoretical research with the study on the specific tax system, and combine the personal income tax reform with other tax reforms, and combine the long-term research of personal income tax reform with the study of the current issues, and also combine the foreign research of personal income tax with the actual situation of China. So, we have to choose the specific personal income tax system which is suitable for China. The goal of personal income tax is to establish and maintain social harmony and to maintain the long-term socio-economic development. China's personal income tax on the legitimate role in regulating income distribution is still weak and the design of tax system is also unreasonable. The backwardness of collection system and the lack of improved taxpayer's income management system both have restricted the regulation function of tax.As to china's personal income tax, we both have found the issues on tax system design and on tax collection, and the explanations of them are either objective or subjective. The issues of tax system design include that the definition of taxable income, the issue of tax model, the way tax returns, pre-tax deduction and the decision of the tax threshold. The issues of tax collection and management include the low level of legal system of tax collection and management, the low probability of discovery of tax evasion, the low real level of punishment of tax evasion and so on. The tax model issue is the root of all these issues, so we have to change the tax model first. China's personal income tax system is based on the classified personal income tax system. As to the classification, we divide different taxpayers into different categories by the sources of their incomes and tax them in accordance with different levels of taxation. Classified income tax system can not completely reflect the taxpayer's ability to tax and which is easy to lead into an unfair result. That means people earning more pay less and earning less pay more. According to the practice all over the world, the integrated income tax system has become a mainstream as it has a relatively simple structure and the taxpayers pay taxes according to their income levels and capacity which embodies the principle of fairness. However, we do not have the basic necessary conditions that it needs. As a result, the income tax system which is suitable for china has to be the mixed income tax system which is a combination of the classified income tax model and the integrated income tax model. And we can implement the integrated tax system when the conditions are ripe. The mixed income tax system not only embodies the principle of paying tax according to capacity but also embodies the principle that different kinds of incomes should be treated differently. The specific content of the mixed income tax system is that the main items of personal income including wage, remuneration, labor compensation and so on are combined and taxed together. And then, still tax the special income items including interest, dividends and so on with the classified income tax system. And it also separates some income items such as royalties, property gains and so on from the personal income tax system. And then gradually implement the personal income tax self-declaration system and implement the property declaration system of civil servants. The self-declaration narrows the gap between the taxpayers and the tax authorities and it is also conducive to cultivating people's awareness of tax as well as to better exercise and maintain the rights of taxpayers. At the same time, we should set up a database which is about the declaration of civil servants to create conditions to improve the personal income tax system. And we should also allow family to be a kind of taxpayers so it can embodies the"people first"principle of the concept of scientific development. Total household income can reflect the capacity to tax more than personal income so it can achieve the target that the same income families have the same personal income tax burden. At last, we should adjust the threshold of personal income tax and lower the tax rate. The tax threshold should be identified in order to protect the predominantly low-income wage earners to have a necessary living income. The design of deductions should takes the necessary living income into account and establish the adjustment mechanism between price and consumption in order to truly reflect the affordability of taxpayers. The existing highest marginal tax rate which is 45% is too high, according to the international experience, the highest marginal tax rate should be determined in the range of 25% to 35%.The tax rate should not have more than five levels, two or three levels will be appropriate.To strengthen the construction of the tax collection and management legal system, we should establish the tax-related information reporting system first. If the tax authorities can have more information about the taxpayers, then they can relatively easy to judge the taxpayers'degree of the compliance with tax. China can take advantage of our existing large number of tax officials to complete the collection of taxpayers'information. We can use the computer programs to collect the same taxpayer's tax-related information and compare it with the self-declaration information in order to judge the taxpayers'degree of the compliance with tax and to take appropriate measures. We should also expand the data exchange channels with banks and business authorities and develop the information exchange and data sharing system in order to improve the quality of grass-roots tax collection and management. And we should improve the status coding system of taxpayers, the taxpayers'credit registration system, the agent system of declaration, personal wealth real-name system, and restrict the large currency transactions. And the construction of relative systems will provide reliable information for the mixed income tax system.At last, we should build harmonious relationship between tax collection and tax payment and improve our public services and the use efficiency of tax. At the same time, we should raise the level of tax services and improve taxpayers'law awareness of tax payment. To build harmonious relationship between tax authorities and taxpayers, we should make it cost less and more efficient.