Currently, over 70% of individuals earning comprehensive income in our country are exempt from paying personal income tax. Among the less than 30% who actually do pay taxes, more than 60% fall under the minimum tax rate of 3%, resulting in relatively small tax contributions. Since the implementation of the new individual income tax system, which combines comprehensive and classified taxation in 2018, personal income tax has effectively played a role in increasing benefits for lower-income groups.
Recent data from the tax authority reveals that approximately 1% of taxpayers report annual incomes exceeding 1 million yuan, but this group accounts for over 50% of total personal income tax collected. Furthermore, individuals in the top 10% of income earners contribute more than 90% of the total personal income tax.
Li Ping, deputy director of the Taxation Scientific Research Institute at the State Taxation Administration, emphasized that the high tax contribution from the top 1% and 10% of earners aligns with the basic principle of tax law, which states that tax burdens should be distributed based on the ability to pay. This approach also reflects practices in major countries around the world. “This indicates that the ‘high’ function of personal income tax is quite pronounced, playing a positive role in income distribution adjustment and promoting social equity,” he noted.
The “beneficial” aspect of personal income tax for lower-income groups is also well-demonstrated. In terms of comprehensive income taxation, lower-income individuals generally are either exempt from taxes or only pay a minimal amount after enjoying the benefits of tax reforms. Most personal income tax revenue comes from middle- to high-income groups, highlighting the fundamental direction of our system: higher contributions from middle and high-income earners, and reduced or no contributions from lower-income earners.
It’s worth noting that in 2018, our country made its seventh amendment to the individual income tax law, raising the basic deduction standard from 3,500 yuan to 5,000 yuan per month. Additionally, six types of special deductions were established, including those for children’s education, elderly care, housing loan interest, rental housing, continued education, and major medical expenses. In 2022, a new special deduction for childcare of infants and toddlers under three was introduced, and in 2023, the deductibles for childcare, children’s education, and elderly care were further increased.
As of the end of June this year, data from the State Taxation Administration’s personal income tax settlement for 2023 revealed that about 67 million people benefited from the increased deductions for childcare, children’s education, and elderly care—resulting in over 70 billion yuan in tax reductions, with an average tax break of over 1,000 yuan per person. The reductions for children’s education, elderly care, and infant care were approximately 36 billion, 29 billion, and 5 billion yuan, respectively—providing timely policy benefits to taxpayers with both elderly dependents and young children.
