Core Points - The Chinese government aims to improve the personal income tax system by gradually establishing a combined comprehensive and classified tax system, focusing on regulating income distribution and protecting legitimate income [1][2][3] - The current personal income tax threshold has not been adjusted since 2018, and there are ongoing discussions about increasing the threshold to alleviate the tax burden on middle-income groups [2][3][4] - The personal income tax system is seen as a tool for promoting social equity by adjusting the tax burden based on income levels, with high-income earners contributing a significant portion of tax revenue [3][5] Tax System Overview - The personal income tax system includes various income categories, with recent updates expanding the classification from four to nine types, enhancing the management of income sources [2][3] - The majority of personal income tax revenue comes from wage and salary income, which constitutes 64% of total personal income tax revenue [2] Recent Developments - Proposals have been made to increase the basic deduction standard to 10,000 yuan per month, which would significantly impact tax liabilities for individuals in high-cost areas [2][3] - The government is focusing on improving the tax deduction system, which now includes various personal expenditures such as education, medical expenses, and housing costs [2][3] Challenges and Considerations - There are structural challenges in the tax system, particularly in regulating non-wage income and ensuring equitable tax treatment for flexible employment and new economic sectors [8][9] - The disparity in tax rates between personal income tax (up to 45%) and corporate income tax (25%) has led to tax avoidance strategies, prompting discussions on potential reforms [14][15] Future Directions - Future reforms may include adjusting the personal income tax threshold based on economic indicators like CPI and median wages to ensure it reflects living costs [10][11] - The introduction of a progressive deduction system based on income levels is suggested to enhance fairness in the tax system [12][13]

Core Viewpoint - The article emphasizes the importance of personal income tax and its threshold as a key element in determining taxpayers' pre-tax deductions, which directly impacts their economic burden and is a focal point for public concern [2][4][6]. Policy Context - The Chinese government aims to improve the personal income tax system by gradually establishing a combined comprehensive and classified tax system, as highlighted in various party congress reports [2][3]. - The 2025 National People's Congress is expected to see proposals for increasing the personal income tax threshold or enhancing deductions, particularly in high-cost areas like Beijing, Shanghai, Guangzhou, and Shenzhen [3][4]. Current Tax Structure - The current personal income tax threshold has remained unchanged since 2018, set at 5,000 yuan per month, with 64% of personal income tax revenue derived from wage and salary income, effectively making it a "salary tax" [3][4]. - The classification of income for tax purposes has been expanded from four categories to nine, including new categories such as business income and capital gains, to enhance revenue management [3][4]. Tax Deductions and Fairness - The special additional deductions for personal income tax have been continuously improved, covering various living expenses such as education, medical care, and housing [4][5]. - The tax system aims to reduce income disparity through differentiated tax burdens, ensuring that high-income earners contribute a larger share of taxes while lower-income individuals may not pay taxes at all [4][5][9]. Challenges in Tax Administration - There are significant challenges in regulating non-wage income compared to wage income, leading to potential inequities in tax burdens [10][11]. - The current system struggles to adequately cover flexible employment and new economic sectors, resulting in mismatches in tax policy application [10][11]. Future Directions - Future reforms may focus on increasing the threshold for personal income tax and optimizing the tax structure to ensure sustainability while promoting fairness [12][14]. - The introduction of a progressive deduction system based on income levels could help address disparities and enhance the equity of the tax system [15][14].