Why China’s high-income earners dread the new tax law that will come into effect in January

Frank Gu, a US-educated legal counsel at a multinational company in Shanghai, is closely following the debate over China’s new individual tax code.

Earning 1 million yuan (US$151,100) annually, the 37-year-old is concerned that he may fall foul of China’s most dramatic personal tax code revision in decades, even though the new tax code has a number of tax-cut measures.

The nation’s top lawmakers are reviewing a basket of changes, including shifting toward an annual levy, higher monthly exemptions, introducing more deductibles, and broadening access to low tax brackets. Once passed, the amendment, the seventh since 1980, will take effect from January 1, 2019.

Accounting firm EY estimates that changes on exemptions and tax brackets – including raising the monthly tax exemption allowance by 40 per cent to 5,000 yuan from 3,500 yuan – means a taxpayer with a gross monthly wage of 60,000 yuan will see his monthly tax burden trimmed by 16 per cent to 11,006 yuan. An individual with a 10,000 yuan monthly salary will see their tax bill cut by 71 per cent to 115 yuan.

But Gu does not see the changes as all good news.