Is the personal income tax rate in China high? Are there many people who pay it? Data recently released by the State Taxation Administration can essentially answer these questions.

According to the 2023 annual personal income tax settlement data, among the individuals in China who have comprehensive income, more than 70% do not need to pay personal income tax, which means that less than 30% of those with comprehensive income have reached the standard for paying personal income tax.

It should be noted that it is not 30% of the entire country's population who pay personal income tax, but less than 30% of those who have comprehensive income.

Comprehensive income refers to income from wages and salaries, labor services, royalties, and manuscript fees. Retirees, children, and students do not have comprehensive income, and they need to be excluded from the total population. We can roughly consider those who have comprehensive income as working individuals.

Data from the National Bureau of Statistics shows that by the end of 2023, the number of employed individuals in China was 740 million. Thirty percent means that about 220 million people paid personal income tax in 2023 due to comprehensive income, accounting for 15.6% of the total population of 1.41 billion, less than one-sixth.

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At the same time, the vast majority of the 220 million tax payers are subject to the lowest tax rate.

China's personal income tax is a progressive tax rate, divided into seven brackets, with the lowest rate at 3% and the highest at 45%. The higher the income, the higher the tax bracket applied. Information disclosed by the State Taxation Administration shows that more than 60% of those who pay personal income tax on comprehensive income are only subject to the lowest 3% tax rate. The remaining less than 40% of taxpayers have a tax rate above 3%, roughly 880 million yuan (220 million * 40%), accounting for 6.2% of the total population.

What does this set of tax data reflect? I think it highlights a reality that increasing labor income is much more important and urgent than what many people call for raising the personal income tax threshold.

The current personal income tax threshold is 5,000 yuan, and the monthly income limit for the first 3% tax rate bracket is 8,000 yuan. Not to mention raising the personal income tax threshold to 10,000 yuan, even if it is raised to 8,000 yuan, it means that those who were originally subject to the first tax rate bracket no longer have to pay personal income tax. Only 880 million yuan will reach the tax standard nationwide, and personal income tax has become a "rich tax," which is not very significant.

More importantly, as calculated above, the number of taxpayers in 2023 was 220 million. After raising the personal income tax threshold, only they can benefit. The remaining 1.19 billion low-income or incomeless people did not have to pay taxes in the first place, and no matter how much the personal income tax threshold is raised, it will not help them at all. At the same time, the country's tax base is reduced, and the funds available for the development of livelihood, medical care, and education are reduced, indirectly harming the interests of low-income or incomeless people.Therefore, raising the personal income tax (PIT) threshold at the current income level can only benefit the relatively high-income group of 220 million people. The 1.19 billion people with low income or no income will definitely not benefit, and may even suffer due to the reduction of funds invested in public basic services.

To increase residents' disposable income, the focus should not be on the PIT threshold, but on reforming the system to significantly increase the overall income of residents, which can be divided into two aspects.

First, increase the proportion of disposable income in GDP.

The GDP for the first half of this year was 61.68 trillion yuan, and the total per capita disposable income was 29.19 trillion yuan. The proportion of national income in GDP was 47%, which is lower than that of developed countries. Next, it is necessary to increase the proportion of national income in GDP, so that the people can obtain more benefits from economic development.

With the increase in this proportion, coupled with the annual rise in China's nominal GDP, the level of national income will make a significant breakthrough.

Second, increase the proportion of labor income in disposable income.

Looking at the main ways to realize national income, there are two main ways: one is labor income, and the other is capital income, or investment income. For the vast majority of low and middle-income people, the former is the main source of income, and even the only source of income for low-income families. Therefore, allocating more resources to increase labor income is beneficial to most residents and families.

To achieve this, it is necessary to adhere to the reform of income distribution. This is not a matter of enlarging the cake, but how to distribute the cake reasonably.

At present, there is a trend for the wealth gap in China to further widen, with the rich becoming richer and the poor having slower income growth. The root cause is the increase in the proportion of capital income. It is time to change the situation and increase the proportion of labor income in total income.

When the overall income level of the people is improved, and more than 50% of the group obtaining comprehensive income reaches the tax standard, or more than 25% of the total population needs to pay taxes, then consider raising the PIT threshold.The former is the top priority, which can bring tangible benefits to the majority of the people, improve the quality of life, and enhance their well-being. On the contrary, if the direction of the reform is wrong and fails to address the key issues, then it would merely be an exercise in futility.