China gives preferential treatment to low-income groups and more than 70% of the people were exempted from individual income tax last year

On October 15, the Chinese tax authority released data for the 2023 annual tax settlement, revealing that over 70% of individuals earning comprehensive income in China are not required to pay personal income tax. Additionally, more than 90% of the tax collected comes from the top 10% of earners. This not only demonstrates the redistributive function of China’s tax system but also indicates a substantial number of people fall into the lower income brackets.

According to a report from CCTV, the tax bureau highlighted that among the remaining individuals obligated to pay taxes, more than 60% fall under the minimum 3% tax rate, contributing only a small amount to the overall tax revenue.

When examining the breakdown of tax contributions, those earning an annual income of over 1 million yuan (approximately $140,000) account for about 1% of the total filers. However, this group contributes over 50% of the total personal income tax revenue, while tax submissions from individuals in the top 10% of income earners make up over 90% of all personal income tax collected.

Moreover, the tax bureau reported that after accounting for various deductions, including social insurance and enterprise annuities, taxpayers earning less than 100,000 yuan annually generally do not have to pay personal income tax.

Li Ping, the deputy director of the Tax Scientific Research Institute of the Chinese tax authority, stated that the personal income tax effectively plays a “beneficial role for the low-income group.” The data shows that low-income earners largely benefit from tax reforms by either paying very little or no tax at all, while the bulk of the personal income tax revenue comes from the middle and high-income groups. This aligns with the fundamental principle of China’s tax system: higher contributions from middle to high-income earners and minimal or no contributions from low-income individuals.

The tax authority also noted that China has developed a relatively comprehensive pre-tax deduction system for personal income tax. The basic deduction standard has been raised from 3,500 yuan per month to 5,000 yuan (approximately $494 to $705). Additionally, there are seven specific deductions available, including those for children’s education, elderly support, and housing loan interest.