Academic journal article Journal of Politics and Law

Individual Income Tax Reform and Wealth Redistribution in China

Academic journal article Journal of Politics and Law

Individual Income Tax Reform and Wealth Redistribution in China

Article excerpt


The immature of the contemporary Chinese individual income tax (IIT) system induce the unjustified wealth redistribution to some extent. This article would not only analysis the relationships between the individual income tax and the wealth redistribution in China, but also positions the defects in the current Chinese IIT system. Apart from that, after referencing the foreign IIT mechanisms and analysis their advanced ideas, the author combines foreign experience with the Chinese native conditions in order to advise for introducing both the classification-consolidated IIT leaving system and the rational deduction system to the current Chinese IIT legal system. The scope of the Chinese IIT is suggested to be wider and the electronic tax leaving and information collection systems would also be the developmental direction of the future Chinese IIT system. All these reforms suggested are beneficial to the fairness of the current Chinese IIT legal system and they would enable the Chinese IIT legal system better achieving its wealth redistribution function.

Keywords: Chinese individual income tax, reform, wealth redistribution

1. Introduction

China is going through a period of rapid economic development and the income of both urban and mral residents has gone up sharply. However, in the meanwhile, the marked disparity of income distribution and the inequalities in wealth are receiving more and more attention. In February, 2013, the Chines state council issued the "Notice of the state council on approving and forwarding opinions of NDRC MOF and MOHRS S on deepen the reform of the system for income distribution", which gives an official acknowledgment of facing the outstanding problems including the disparity of income distribution, the disorder of the income distribution system, the invisible income and the illegal income in the contemporary domestic mechanism.

2. The relationship between the Individual Income Tax and the Wealth Redistribution

The problems of the current domestic wealth distribution concentrated on the process of primary distribution and the redistribution. Generally speaking, the ultimate target of income distribution is to achieve both the equity and the efficiency in wealth distribution. However, due to the development pressure and the defects in China's immature market economy, the primary distribution, which takes efficiency as foremost, can hardly make contribution to the goal of narrowing the gap in wealth distribution. Therefore, it is more realistic to utilize and relay on the redistribution mechanism to adjust the wealth distribution as well as realizing the equity on it.

Among all the tools that could be utilized in wealth redistribution, taxation always be seemed as the most efficient one, which could largely promote the fairly distribution of personal income. In the taxation system, only the property tax and the income tax are the most efficient taxation tools in adjusting the personal income and narrowing the revenue gap. In current Chinese tax system, there are three main categories of tax, which are the circulation tax system, the income tax system and the property tax system. All the categories of tax in the circulation tax system except the consumption tax are levied in accordance with proportion, which has no progressive feature and thus has no functions in narrowing the gap of personal income. What's more, China still has not established effective property taxation mechanisms such as housing tax and death duties, which could contribute to the wealth redistribution by levying the existed assets. Therefore, the income tax mechanism would be the most effective taxation tool for the adjustment of wealth redistribution. More specifically, among all the categories of income tax, the individual income tax is the most suitable instrument for adjusting personal wealth redistribution due to its progressive feature and the direct influence on individuals. Thus, the Chinese IIT system could play vital roles in regulating the wealth redistribution and realizing the equity in income distribution. …

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