China ‘not ready’ for US-style whole family income tax, although progressive changes are underway

A pioneering US approach to taxation which enables couples to jointly file based on whole family income, including deductions, is garnering attention in China, although it is not clear that mainland authorities plan to role out a similar scheme any time soon.

Experts say that China will strive for further reform to its tax system to reflect the rising cost of living and ensure competitiveness in the global arena.

In this year’s government work plan, Premier Li Keqiang said China will increase the salary taxation threshold. Deputy finance minister Shi Yaobin also told a press briefing in Beijing earlier this month that China will improve its individual tax levy regime by shifting towards a comprehensive taxation system.

By doing so, Beijing is considering increasing the base income for taxation by combining similar sources, including salaries and pay and adding more deductions, including children’s education and medical treatment for critical illnesses.

The reform has reignited talks on how far China can go in the direction of the US model.

Liu Shangxi, head of the finance ministry’s research institute, believes Chinese taxpayers are not ready for the complex filing process needed for the US approach.