Research On Expense Deduction And Tax Rates Design Of Chinese Personal Income Tax

China’s economy has been in a state of rapid development since1978. But at the same time, the income gap of residents in our country has been becoming more and more serious, which has been causing wide public concerns day by day. Personal income tax is a direct tax levied on citizens, thus it has incomparable advantages over other kinds of tax. One of the tools to solve the problem of the widening income gap of Chinese residents is to improve the system of Personal income tax in China. Standing Committee of the National People’s Congress has passed the newly revised personal income tax on June30th,2011, which contains increasing the expense deduction from2000yuan per month to3500yuan per month, reducing the tax brackets from9to7by canceling two of marginal tax rates15%and40%and reducing the lowest tax rate from5%to3%. However, the reform of Personal income tax in China still has a long way to go. The goal of the reform of Personal income tax in China is to construct the’classification and integrated combination’ taxation model. Accordingly, how to design the expense deduction, tax brackets and marginal tax rates in the’classification and integrated combination’ by a reasonable way has become an issue of immediate significance.This paper sums up the present designs of expense deduction and tax rates of Personal income tax in China, analyzes two of principles and some foreign experiences. On the basis of the above analysis, the paper takes the income distribution function of employment of China’s urban families as the empirical analysis instrument to analyze the current expense deduction and the seven levels of progressive tax rate of wage and salary income, and gives some proposals.Specifically, this paper consists of six parts:The first part describes the background, significance of the topic, data and the study method, review of the literature, as well as basic viewpoints and innovation.The second part briefly summarizes the present overall designs of the system of expense deduction and tax rates of Personal income tax in China. On the basis of the classification tax model, the expense deduction and tax rates of Personal income tax in China are different according to the sources of personal income.The third part analyzes two of principles for how to design the expense deduction and tax rate of Personal income tax. One of the principles is keeping the basic allowances as pre-tax expense deduction, which is based on the theory of Max’s Labor reproduction. The other is bringing the function of adjusting the difference of individual income into full play, which is more urgent in China.The four part gives some introductions about the expense deduction and tax rates of Personal income tax in America, Japan and England, and draws some experiences from these developed countries.The five part is the most important part of the paper. It aims to provide a more objective method to design the expense deduction and tax rates in the "classification and integrated combination" taxation model considering the more subjective way in determining the expense deduction and the seven levels of progressive tax rate of wage and salary income.The six part consists of conclusions and policy recommendations.