Why China should worry if it keeps its 45 per cent tax rate on top earners

China needs to slash its highest tax levy on the nation’s top income earners in its upcoming individual tax code review, or risk seeing an unprecedented talent exodus, argued eight academics at a time when Beijing is likely to make its most dramatic amendment in decades.

They called for authorities to scrap the top two tax brackets of 35 per cent and 45 per cent in the current seven brackets progressive tax system on individuals, granting high income earners more leeway with a five tax brackets system that will be capped at 30 per cent.

The nation’s top legislative body is reviewing a spate of changes on its individual income tax law, including a rise in monthly exemptions by 43 per cent to 5,000 yuan (US$738), introduction of more deductibles, broadening access to lower tax brackets and a shift toward an annual levy. Once passed, the amendment, the seventh since 1980, will take effect from January 1, 2019.

The academics from esteemed mainland universities called for further revision of the code, as the current draft failed to “respond to the need of the [current] times” as it refrains from trimming the highest 45 per cent tax on high income earners, a group that is often highly skilled professionals China wants to attract and retain in the global fight for talent.

“Mainland China’s individual income tax has no advantage even when compared with the United States, a nation that heavily relies on personal taxes,” said the academics in a petition published on Chinese mainland media thepaper.cn over the weekend.