Study On The Exemption System Of Wages And Salary In Personal Income Tax Law

Personal income tax is called "social justice regulator" or "Robin Hood tax" in many countries. In other words, it is one of the most important functions of personal income tax to adjusting income distribution and narrowing the gap between the rich and the poor. Wage and salary income tax exemption (Expense deduction standard) is always the focus of the reform of personal income tax. In January1,2006, the standard was adjusted from800to1600yuan, and then raised to2000yuan in March1,2008. Now the standard has been raised to3500yuan from September1,2011when this strategy is implemented. However, it is frequently mentioned that people still propose to raise the standard to5000,8000and even10000yuan. There are several problems that whether the current3500yuan tax exemption is appropriate, how to treat the specific system setting of the personal income tax and wage and salary income tax exemption, and so on. These problems are related to not only National People’s quality of life but also construction and perfection of national tax law.Wage and salary income comes from hard working. Basic living expense of taxpayers and their family members are exempted before they pay tax. People are encouraged to create wealth by working. They have appropriate proportion of their fruit of labor which is not all or mostly obtained by the state, making sure the safety of fruit of labor, and enhancing people’s working enthusiasm. At the same time it is consistent with the principle of distribution according to work and more pay for more work, and reflects a basic protection for the weak. Theoretical study on the exemption system can provide theoretical tone for the specific design, which ensures the tax revenue of the state, meanwhile more and more reflects adjusting the distribution of income and preventing social polarization of the rich and the poor.In the demonstration of this exemption from2000to3500yuan, this paper estimates in particular the influence on the taxpayer of the use of3500yuan exemption and new seven stage progressive tax rate and makes numerical analysis of the specific effects on the income distribution of the raised exemption amount. The conclusion is reached that most people whose monthly wage income is below2000yuan do not enjoy interests of tax exemption upregulation, and the exemption amount increases the real beneficiaries are high earners while personal income tax reduction portion will ultimately be passed on to the low income people. So the increases of exemption amount don’t fundamentally solve the problem of polarization of the rich and the poor, and to some extent, also make income gap further expanded. It will be more difficult to achieve the goal for fair and reasonable income distribution. The fundamental reason why exemption amount rise violates with the intended purpose, and the legislation purpose of exemption system conflicts with legal practice is that our exemption system has been established mistakenly. Both of the applicable object and specific amount are "maken rigidly uniform", not different from man to man. The specific amount is either constant for a long time or changing frequently, which not only affects the authority and stability of legal but also results in lack of careful consideration of family structure and regional difference. So our country exemption system is criticized much, and we need to draw lessons from foreign successful practices and reform in consideration of the national condition of our country in present stage.The specific design of the exemption system reform should be distinguished. Exemption does not apply to the taxpayers whose income reaches a certain level. They should pay tax with progressive rate directly. Because one of original intention of setting the exemption amount is to safeguard the basic survival and development rights of low income earners not high income earners whose rights will not be influenced greatly by applicable exemption. We should explicit what exemption specific includes, meanwhile establish elastic mechanism of exemption specific amounts, appropriately considering some factors such as family or region differences.The reform of exemption system is an important part of our country taxes reform, needing for other related taxes reform to play a better role. It is a big trend that income tax system would change from the classified one to the comprehensive one and from personal tax units to the family unit. Taxation is related to not only the stability of the state, but also the living of people. Income tax exemption system reform can make low-income persons pay less taxes, trying to take care of their interests, while make high-income ones to pay more taxes, regulating the distribution of income. Finally it will promote social fairness and justice, so that people can live in a harmonious and stable social environment for survival and development.