BEIJING (Reuters) - China’s parliament moved on Friday to raise the threshold for collecting income taxes, the first major adjustment in seven years, in a bid to boost incomes and personal spending power in a slowing economy.
The threshold for collecting income taxes will rise to 5,000 yuan ($732.21) per month from 3,500 yuan, according to the amendment passed in parliament on Friday.
Taxpayers also will be allowed to deduct expenses related to children’s education, interest on home mortgages, housing rent and treatment for serious diseases.
The change to the income tax threshold will take effect on Oct. 1 this year, while rest of the amendment will go into effect on Jan. 1 next year.
It is the latest move by China’s policymakers to cut taxes for companies and individuals in hopes of spurring growth in the world’s largest economy amid an escalating trade war with the United States.
The head of China’s state planning commission said on Wednesday that the country needed more effort to hit consumption targets as wage growth remained stagnant.
The income tax amendment will significantly boost consumption and cut tax revenue by about 320 billion yuan per year, vice finance minister Cheng Lihua told a news conference.
Wang Jianfan, a finance ministry official, said the number of taxpayers would decline after the tax law changes. The proportion of taxpayers in the urban workforce was expected to fall to about 15 percent from the current 44 percent, he said.
Minister of Finance Liu Kun said in June that the planned changes to the individual income law would lead to tax cuts of varying degree for all taxpayers, especially low and middle-income earners, according to the official Xinhua News Agency.
For taxpayers earning a monthly salary of around 10,000 yuan ($1,463.55), their tax burden will fall by 70 percent, state broadcaster CCTV said in a report.
Under the amended law, taxes will be assessed based on comprehensive income that includes other sources of income. Current income tax rates are based on wages.
($1 = 6.8327 Chinese yuan renminbi)
Reporting by Elias Glenn and Stella Qiu; Editing by Kim Coghill and Darren Schuettler