On October 15, a representative from the China News Service reported from Beijing that since the implementation of a new personal income tax system that combines comprehensive and classified taxation in 2018, the effects of the policy have become increasingly apparent. Individuals with an annual income not exceeding 100,000 RMB are generally exempt from paying personal income tax.
The State Administration of Taxation released data indicating that over 70% of those earning comprehensive income in China do not need to pay personal income tax. Among the remaining less than 30% who do pay taxes, more than 60% fall under the lowest tax bracket with a rate of 3%, resulting in minimal tax liability.
Recent tax declaration trends show that high-income earners—those making over 1 million RMB annually—constitute about 1% of all tax filers, but they account for more than 50% of the total personal income tax collected. Furthermore, individuals in the top 10% by income contribute over 90% of the overall personal income tax. Li Ping, deputy director of the Taxation Science Research Institute, explained that these figures indicate the significant impact of the personal income tax mechanism in adjusting income distribution and promoting social equity.
Simultaneously, the benefits for low-income earners have been fully realized. Li noted that, as a result of tax reforms, low-income groups either pay no tax or only a minimal amount, while the majority of personal income tax is contributed by middle to high-income individuals.
In 2018, China revised its individual income tax law, raising the basic exemption threshold from 3,500 RMB per month to 5,000 RMB (60,000 RMB annually). The reforms also introduced additional deductions for children’s education, elderly care, mortgage interest, rental housing, continuing education, and serious illness medical expenses, with a new deduction for childcare for children under three years old added in 2022 and further adjustments in 2023.
According to tax reconciliation data for 2023, which concluded at the end of June, around 67 million people benefitted from the increased deductions for the care of children under three, children’s education, and elderly support due to these policy changes, resulting in a tax reduction exceeding 70 billion RMB for taxpayers with both elderly dependents and young children.
Li Ping emphasized the extensive coverage and high limits of these tax deductions, which significantly reduce the tax burden on middle and low-income earners. Data shows that taxpayers typically benefit from at least two types of special deductions. When combined with the annual basic exemption of 60,000 RMB, and after accounting for standard deductions, individuals with a comprehensive income of 100,000 RMB or less are essentially exempt from personal income tax.
