Weakened Redistributive Impacts of
Personal Income Tax in Urban China:
Evaluation of the Personal Income Tax Reform
Implemented in September 2011

Ximing Yue
Jing Xu
Qian Liu

March 2012


A new personal income tax reform implemented in China on September 1, 2011. The main content of this amendment is as follows: The first is to raise the pre-tax salary deduction standard from RMB2000/month to 3500/month; the second is to adjust the tax rate structure of salary, reducing from the former 9-grade extra progressive tax rate to 7 grades and adjusting the rate and the ranges of income; This paper researched the income redistribution effect after personal income tax reform. We first decomposed the redistribution effect index of personal income tax by the composition of income according to the current personal income tax collection mode of sub-levied in China. The main analysis results can be summarized in two points: First, the level of the average effective tax rate is the main determinant of the income redistribution effects and progressive is secondary. Due to the reduction of the effective tax rate, the tax reform has weakened the redistribution effects of personal income tax which already very weak in the former tax system. Second, the overall progressivity index of personal income tax was inverted U-shaped with the improvement of deduction in salary income. Coincidentally, the deduction determined by this reform (RMB3500/month) happens to be at the maximum of the inverted U-shaped,so the higher deduction would weaken the progressive.

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