China should raise the personal income tax floor and cut the tax rate for low-income groups to spur consumer spending and give the economy a lift, according to a former central bank official.
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At a roundtable discussion on the weekend, Sheng Songcheng, former chief of the statistics department at the People’s Bank of China, said that with less tax to pay, consumers in these groups would have more money to spend on areas such as aged care.
“Consumption has improved, but is still unsatisfactory in terms of data,” said Sheng, now a professor with the China Europe International Business School in Shanghai.
“We should focus more on consumption and let it play a bigger role in driving economic growth.”
02:15
China sees slowest economic growth in over a year with 4.6% GDP in third quarter
China sees slowest economic growth in over a year with 4.6% GDP in third quarter
Sheng suggested that this could be achieved in part by increasing the minimum personal income tax threshold from 5,000 yuan (US$704) a month to 8,000 yuan. The increase would mean the government would lose out on just 30 billion yuan in tax income a year, or less than 0.2 per cent of the total – a “trivial amount”.
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Cutting the income tax rate from 10 per cent to 5 per cent for earners of up to 200,000 yuan a year, and from 20 per cent to 15 per cent for people earning up to 350,000 yuan would only reduce tax income by an estimated 100 billion yuan, he added.