China's Individual Income Tax Law Analysis Of The Expense Deduction System

Individual Income Tax Law of the People's Republic of China was revised at theeighteenth meeting of the Standing Committee of the Tenth National People's Congresson October 27, 2005. The highlight of this revision is that the standard deduction ofwages and salaries is increased from RMB 800 to RMB 1600. It can be said that thisrevision catches hold of both what people concern most and the center of individualincome tax's reform. Whether a nation's Individual Income Tax Law is good or not ispartly based on its provisions of deductions. Deductions are the center of the individualtax system which can greatly affect the burden of taxpayers. If we can catch it on thereform of Individual Income Tax Law, we catch the sticking point and the mostimportant thing.However, we can not deny the fact that this revision only increases the expensededuction of wages and salaries and doesn't solve the problems such as the chaos ofexemption and reduction, the missing of medical treatment fee deduction, education feededuction, etc. So it is important to investigate and reform the expense deductionsystem thoroughly.This paper is divided into four chapters. Beginning with the definition andprinciple of the expense deduction system, this paper shows the meaning and functionof setting up the expense deduction system. After introducing the legislation experienceof developed countries and the reality and shortcoming of our nation, this paper bringsforward the developing direction of our nation's individual income tax deductionsystem.Chapter one discusses the meaning, principle, status, and the role of the expensededuction system. It points out that the expense deduction system is one of the mostimportant parts of Individual Income Tax Law and it will determine whether the IncomeTax Law can adjust income and average fortune well or not. To analyze the expensededuction system thoroughly and systematically, this paper firstly introduces thedefinition of special revenue measures and points out that the expense deduction systemis part of individual income tax and then defines the deduction system definitely. Afterthat this paper discusses the method of deduction and the principle of setting up theexpense deduction system and points out that impartiality is the most importantprinciple of setting up the expense deduction system.Chapter two introduces the expense deduction systems of America, England,Germany, Japan and Korea and then analyses the characteristics of them, which isaimed at providing reference for our nation's expense deduction system reform.Chapter three looks back the history of our nation's Individual Income Tax Lawand its expense deduction system. It makes out that it is not long before our nationbuilds up our own Individual Income Tax Law and its expense deduction system and weare dropped far behind in this field. Then this chapter introduces the provisions of ournation's expense deduction system and analyzes the characteristics of it.Chapter four, as the focal point, accounts for one third of this thesis. Firstly, thischapter brings forward the aim of setting up our nation's expense deduction system andpoints out that we must consider some factors such as satisfying the needs of workers,adjusting the distribution of income, simplifying administration measures, etc. Secondly,this chapter puts forward some concrete steps when reforming our nation's deductionsystems including generalizing tax index, setting up flexible tax systems, calculatingdeduction amounts based on families, and adding specialized deduction items. Finally,this chapter puts forward some connecting steps such as reforming tax systems,declaring systems, etc.The conclusion part of this thesis emphasizes the meaning and urgency ofreforming our nation's expense deduction system and points out at the same time thatsetting up a kind of expense deduction system which can be suitable for our nation' sreality is a complicated project. In order to do it successfully, we must both consider theactual circumstances and learn from the experience of developed countries and thendesign practicable expense deduction systems. Because there is a close relationshipbetween the expense deduction system and other systems of Individual Income Tax Law,we must reform other systems when reforming expense deduction systems if we want toget a satisfying result.Because there are few overall and systematic researches on expense deduction ofIndividual Income Tax nowadays, in addition, the author's knowledge about the issue islimited, so there are some that the author herself can not be satisfied with. Commentsare sincerely welcome.