"15th Five-Year Plan" Releases Signals: Increase in Personal Income Tax Special Additional Deduction Efforts

There are new developments in personal income tax policies closely related to the wallets of ordinary people.

On the evening of March 13, the “Outline of the 15th Five-Year Plan for National Economic and Social Development of the People’s Republic of China” (referred to as the “15th Five-Year Plan”) was announced. It proposed increasing efforts to regulate income distribution by fully leveraging the role of special additional deductions and increasing the deductions for personal income tax.

Tian Zhiwei, Dean of the Institute of Public Policy and Governance at Shanghai University of Finance and Economics, told First Financial that this means that in the next five years, the standards for special additional deductions for individual income tax may be raised, including deductions related to promoting childbirth.

The “15th Five-Year Plan” also emphasizes improving fertility support policies, requiring the use of child-rearing subsidies, personal income tax deductions for infant care and children’s education, and exploring the establishment of a dynamic adjustment mechanism for subsidy standards.

Ge Yuyu, Associate Professor at the Shanghai National Accounting Institute, told First Financial that based on these directives, it is expected that the standards for relevant personal income tax deductions will be increased in the future, and further optimization of the differentiated design of these deductions may be considered.

Liu Rong, a professor at Southwestern University of Finance and Economics, told First Financial that in the future, the standards for relevant personal income tax deductions may be increased to stimulate consumer demand.

To make the personal income tax system fairer, China introduced six special additional deductions, including for children’s education, starting in 2019. In 2022, a deduction for infant care for children under three was added. In 2023, China increased the deduction for children’s education and infant care from 1,000 yuan per month per person to 2,000 yuan.

During this year’s National Two Sessions, some NPC deputies and CPPCC members offered suggestions regarding personal income tax deductions.

For example, some proposed implementing a tiered deduction system based on the number of children: increasing the deduction for infant care from 2,000 yuan per month per child to 3,000 yuan for the second child, and to 4,000 yuan for the third child, thereby providing greater tax support for families with multiple children. Others suggested further increasing the standards for deductions related to children’s education, elderly care, and mortgage interest.

Under the current personal income tax threshold and various deduction policies, individuals with an annual comprehensive income of less than 120,000 yuan from wages and salaries generally do not need to pay personal income tax after tax reconciliation.

Tian Binbin, Director of the Tax Governance Research Center at Zhongnan University of Economics and Law, told First Financial that from the perspective of increasing income distribution regulation, future personal income tax deductions should not only focus on raising deduction standards but also emphasize the precision of tax cuts. Currently, low-income groups do not pay personal income tax, and many middle-income groups also do not pay. Future increases in deduction standards should focus on structural optimization, such as making deductions for elderly care for children more favorable to parents with low pension income in rural areas.

According to data from the Ministry of Finance, by 2025, the nationwide personal income tax revenue will reach 1.6187 trillion yuan, an increase of 11.5% over the previous year. This growth rate is significantly higher than the average tax growth rate of -0.8% for that year.

The “15th Five-Year Plan” also proposes increasing the proportion of direct taxes, improving a comprehensive and classified personal income tax system, gradually expanding the scope of comprehensive taxation, and refining policies for taxes on business income, capital income, and property income.

(This article is from First Financial)