Comments to the MOF's Interim Measures for Special Additional Deductions of Individual Income Tax (Draft for Comments)

2018-11-02 | All chapters

The European Chamber welcomes the decision of the Ministry of Finance to publicly call for comments on the Draft Interim Measures to the Individual Income Tax Law and the draft of the Implementation Rules of the Individual Income Tax Law (Draft Implementation Rules). The Draft Interim Measures further specify the detailed standards and rules of the itemized deductions for specific expenditures proposed by the new Individual Income Tax Law (“IIT law”). The Draft Interim Measures propose to elaborate the scope of application, yearly or monthly standard deduction amount, the objection of the deductions, the time of the deductions and other practical rules of each itemized deduction (including children’s education, continued education, medical expenses for serious illness, housing loan interest, housing rent, and caring for the elderly). In addition, the Draft Interim Measures in particular propose that non-Chinese nationals who are entitled to some of specific additional tax deductions may choose to enjoy these deductions, or may continue to enjoy the current tax-exempt benefits on children education, language training and housing rent. These specific rules on itemized deductions help individuals and companies to understand the new IIT law and to implement the new IIT laws effectively.

However, some important concerns remain regarding the implementation of personal deductions.Notwithstanding the positive step of extending personal deductions to local professionals, we are concerned that this change will considerably increase the administrative burden for businesses. In the section of detailed comments, we suggest some alternatives to reduce potential costs and increase efficiency. Additionally, the European Chamber considers data privacy of taxpayers another major concern. In some circumstances, taxpayers need to provide private information to their employers. We suggest the authorities to ensure that taxpayers could always provide their personal information to the tax authority directly.

Since the itemized deductions introduced by the new IIT law have attracted great attention among the whole society, we suggest that the legislature should take a more careful attitude towards the enactment of the implementation provisions of the itemized deductions. Considering the diversity and complexity of the specific expenditures for each taxpayer, more situations should be considered and more detailed rules should be announced in order to ensure the effective implementation of the new IIT law in the future.