Legislator: Income tax threshold should be raised

The threshold of the personal income tax should be raised from 3,500 yuan ($557) to 5,000 yuan or above to offset the rising living cost, a national legislator said.[Special coverage]

Dong Mingzhu, president of Gree Electric Appliances Inc, also called for changes in the manner business owners pay income tax, to prevent the affluent group from paying less in a legal way.

In an interview with Chinese Business View, Dong said the tax exemption threshold should be raised at least to 5,000 yuan because of the rising commodity prices.

"It would be better if the country agrees to raise the threshold to 10,000 yuan," she said.

The Chinese government raised the person income tax threshold to 3,500 yuan in 2011.

But the commodity price has risen a lot in recent years, Dong said, adding that paying less will enable the working population to have more money to spend.

"Many employees demand their employers to raise their paycheck. But if the tax exemption threshold does not change, they will need to pay tax for the increment. For example, if I raise the paycheck by 1,000 yuan, my employees will actually get less than 1,000 yuan after paying tax for that amount. So raising the tax threshold can serve as another way to help companies to reduce their costs," she said.

Dong said the plan is feasible because of the multiple sources of the country's tax, and the earnings from individual income tax accounts for 7 percent of the country's total tax income.

"It won't be a heavy impact on the country's taxation by raising the threshold to 5,000 yuan, but the working population will feel the benefits of the nation's taxation policy," she added.

On how private entrepreneurs should pay their taxes, Dong suggested evaluating the affluent group's income based on the company's profit or the company size before charging their income tax.

"Many shareholders of private companies work as the companies' executives. To pay less, they always set a very low salary for themselves and ask their companies to cover their living cost."

She gave the example of a business owner having a car of 300 million yuan bought in the name of the company and listing the vehicle as the company's assets. In that way, the entrepreneur lowered what he or she should pay in income tax meanwhile increasing the cost of the company and reducing the amount of what the company should pay for corporate tax.

To prevent business owners from buying luxury items under the name of company, Dong called for a universal standard, under which business owners are not allowed to buy things in the name of the company if it exceeds a certain amount.

"There should be a consumption limit in line with the company's sales revenue," she said. "Business owners should pay the extra if the amount exceeds the limit."