Personal Income Tax Deduction System Research

Pre-tax deduction of individual income tax refers to a tax system that levies taxes on the balance after the deduction of the cost and other necessary expenses. Individual income tax deducted mainly includes:deduction mode, deduction method, deduction standard and deductibles four aspects of contents. As the general principles throughout the whole tax system, tax fairness is also reflected in tax deduction system, mainly in the horizontal equity and vertical equity of tax deduction, and coordination relationships between tax equity and tax efficient..Tax fairness must be reflected in tax deduction to realize the social and economic policy goal of income redistribution, and reduce the wealth gap. However, our tax deduction system has significant weakness on tax fairness principle. One side, the classification deduction mode has not fully considered the individual difference and taxpayers'family background and real tax ability of taxpayers. The deduction without indexing does not reflected price factors. Therefore, it is hard to realize horizontal equity of tax system. On the other side, too much deduction rate level, income level of deduction with no consideration on taxpayer individual and lack of tax collection and management make it difficult to realize substantial tax fairness.In contrast, tax system of some western developed countries can reflect a taxpayer's individual differences on deduction modes, methods, standards and items and other comprehensive account of various factors, so as to reflect the fair tax, and realize the ability-to-pay principle. According to the current situation in China, the author thinks that individual income tax deduction system can effectively be reformed in the following two aspects. On the one hand, classified and comprehensive combination of deducting mode should be implemented. Tax deduction should be process by family units. Deduction mode has mainly to do with the standard deduction complementary with classified deduction. Expense deduction standards should adjusted with the consumer price index and rate of inflation It should be timely changed in order to achieve horizontal equity of tax. On the other hand, the appropriate grade of lower tax rate, increasing itemized deductions of maintenance, support, education and medical expenses, considering the affordability of the taxpayers, and strengthening tax collection efforts, has to be done so that tax deduction can reflect vertical equity. So that the tax deduction reflects the principle of tax fairness, and meets the requirements of tax fairness and efficiency.