On October 15, the State Taxation Administration of China released data on personal income tax filings for the 2023 fiscal year, revealing that over 70% of individuals earning comprehensive income are not required to pay personal income taxes. This indicates that the personal income tax system effectively plays a role in “increasing benefits for those with lower incomes.”

According to statistics from the State Taxation Administration, among those classified as taxable individuals, more than 60% of the less than 30% who do pay taxes are subject to the lowest tax rate of just 3%. Li Ping, the deputy director of the Taxation Scientific Research Institute at the State Taxation Administration, explained that the personal income tax system is successfully supporting lower-income groups. Following tax reforms, these individuals often find themselves either exempt from taxes or liable for minimal amounts.

Currently, China has established a relatively comprehensive system of pre-tax deductions for personal income tax. For instance, the basic deduction threshold has increased from 3,500 yuan to 5,000 yuan per person per month. Additionally, there are now seven types of special additional deductions available for expenses such as children’s education and elderly care.

Li noted that the 5,000 yuan threshold is comparatively high on an international scale, effectively covering essential living expenses. The current pre-tax deduction framework not only accommodates taxpayers’ abilities to pay but also reflects the government’s social and economic policies.

When breaking down tax contributions, high-income earners account for over 90% of personal income tax revenues. Although individuals earning over 1 million yuan annually make up only about 1% of total tax filers, they contribute more than 50% of total personal income tax, with the top 10% of earners accounting for over 90% of the tax collected.

Li emphasized that the high tax burden on the top 10% of earners aligns with the principle of equitable tax distribution based on the ability to pay and is consistent with trends observed in major economies around the world. This illustrates that the personal income tax system effectively serves to adjust income distribution and promote social equity.

Moreover, the recent adjustments to special additional deduction standards for families caring for elderly and young dependents have made a significant impact. In 2023, the deduction for caring for children under three years old and for children’s education was increased from 1,000 yuan to 2,000 yuan per child per month, while the deduction for elderly care rose from 2,000 to 3,000 yuan per month.

According to the tax administration, approximately 67 million people have benefited from these policies in 2023, resulting in a tax reduction exceeding 70 billion yuan, averaging over 1,000 yuan per individual. The reductions were approximately 36 billion yuan for children’s education, 29 billion yuan for elderly care, and 5 billion yuan for the care of infants.

Li pointed out that these deductions are broad-reaching and significant, alleviating the tax burden for middle- to low-income earners. Most taxpayers benefit from multiple additional deductions, and increasing these deductions only enhances disposable income and boosts consumer capacity.

When it comes to individuals earning less than 100,000 yuan annually, they are generally not required to pay personal income tax. Why is that the case? Experts explain that the basic deduction for personal income tax, commonly referred to as the “threshold,” stands at 60,000 yuan. Taxpayers are also eligible for various deductions, including those for social insurance, housing fund, children’s education, and elderly care.

What does this mean for ordinary citizens? Lee provided a calculation for “sandwich” generation taxpayers who support both children and elderly family members. By splitting the deductions for children’s education with a partner, they can deduct 1,000 yuan per month. If they share the elderly care deduction with siblings, that could add another 1,500 yuan a month. Together, these deductions can total 2,500 yuan a month, amounting to 30,000 yuan a year. For individuals with more than one child or those who are only children themselves, the deductions are even higher.

Additionally, the annual basic deduction of 60,000 yuan, combined with approximately 15,000 yuan from social insurance contributions, can add up to exceed the 100,000 yuan income threshold. Thus, it is clear that individuals earning up to 100,000 yuan annually are largely exempt from personal income tax.