Based on actual survey questionnaires, the scope and methods of deduction for special additional items such as supporting the elderly, child education, serious illness medical treatment, and housing loans in personal income tax are scientifically determined. Sensitivity analysis method is used to analyze the impact of special additional deductions in personal income tax on personal income tax burden, in order to determine the reasonable scope of special additional deductions for families as the reporting unit in China in the future.
4.1 The scope and deduction method of special additional deductions
The subject of this questionnaire survey is families, with 19507 participants. The main content of the questionnaire is related to the issue of individual income tax being paid by families. The specific statistical analysis of the questionnaire survey is as follows.
(1) Determine the scope and method of deduction for supporting the elderly in the family. Supporting the elderly can be said to be a relatively high expenditure in families. From this survey questionnaire, it can be seen that 52.63% of households spend 10000 to 60000 yuan annually on supporting the elderly. Regarding the issue of supporting the elderly in terms of age, 42.76% of people believe that only elderly people aged 55 and above need to pay for support, while 34.59% believe that elderly people aged 60 and above need to pay for support, and should be based on the family as a unit, rather than a member of the family. However, due to the fact that not every family's situation is the same, some people believe that more factors need to be considered in the deduction of expenses for supporting the elderly, such as who will bear the cost of living with the elderly, or the entire family will bear it, which will appear more reasonable and fair. In addition, in terms of expenditure deduction, it is necessary to comprehensively consider factors such as whether the elderly have lost their labor force, whether there is a pension, and the number of people supporting the elderly. According to the results of the questionnaire survey, 51.76% of elderly people in households have retirement benefits. For elderly people in households with retirement benefits, 40.91% believe that it is appropriate to reduce the pre tax expenses for supporting the elderly in order to appear fair and reasonable. In summary, the scope and method of deduction for supporting the elderly should be implemented according to certain standards, including whether the elderly have lost their labor force, age, and pension. Then, the pre tax deduction expenses should be adjusted based on the actual situation of the family.
(2) Determine the scope and method of deduction for children's education and continuing education expenses. In families, children's education can be considered a significant expense and an essential part of every household with children. From the survey results, it can be seen that approximately 53.88% of households spend between 10000 and 60000 yuan annually on children's education. Regarding the issue of deduction for children's education, 35.37% of people believe that education expenses for children before the age of 18 can be deducted before tax, while 20.96% of people believe that only expenses for nine years of compulsory education can be deducted before tax, excluding education expenses during university; Regarding the deduction of expense types, 21.32% of people believe that any expenses related to children's education can be deducted before tax, including tuition fees and various training fees. 21.89% of people believe that only tuition fees can be deducted before tax, which is more reasonable. In terms of the number of children in a family, 30.16% of households believe that the deduction standards for their children's education expenses should be consistent, while 19.32% of households believe that only one or two children can be deducted before tax according to the standards, and the deduction for subsequent children should be appropriately reduced. Additionally, 16.31% of households believe that the education expenses for their first child can be deducted according to the standards, and should decrease in sequence thereafter. Based on the analysis and statistics of the questionnaire results, we can refer to Hong Kong's standards for deducting children's education expenses to determine the deduction standards for children's education, or start from the first child and gradually decrease from then on. In addition, regarding the deduction standards for continuing education expenses, due to different family circumstances, for families that need to be deducted, we can directly set the deduction standards for continuing education families based on their actual situation.
(3) Determine the scope and method of deduction for major medical expenses. For ordinary families, serious illness healthcare can be considered a significant expense. We can also see from the survey results that most families spend less than 10000 yuan per year on serious illness healthcare, with 31.97% of households spending between 10000 and 50000 yuan. Regarding the deduction of medical expenses for major illnesses, 53.02% of households believe that major medical expenses can be deducted before tax, while 46.98% of households believe that all medical expenses can be deducted before tax. Regarding the issue of deduction standards, 41.79% of households believe that major medical expenses can be deducted based on actual circumstances, while other medical expenses can be deducted according to relevant standards. Another 30.49% of households believe that major medical expenses should be deducted on a household basis and according to fixed standards. In real life, the medical expenses for major illnesses vary for each family. Some families may not have them for a year, while others may have significant expenses in a year. Therefore, in order to ensure fairness in tax burden, fixed deduction standards should not be established, and deductions should be made based on actual situations. In this regard, we can learn from Japan's standards for deducting medical expenses for major illnesses, and first set a maximum limit, Then, within the limit, pre tax deductions are made based on the actual situation of the household. The specific deduction fees can be determined based on relevant certificates, such as hospitalization certificates issued by hospitals, expense lists, invoices, etc.
(4) Determine the scope and method of deduction for ordinary housing loan interest and housing rental expenses. From the results of the survey questionnaire, it can be seen that the housing loan interest of most households is between 10000 to 60000 yuan per year, which is a relatively large expense for a family. Regarding the scope of deduction for mortgage interest and housing rental expenses, 41.19% of households believe that deductions can be made according to standards, but only for the first home mortgage interest or rent. Regarding the deduction standards for mortgage interest or rent, 33.57% of households believe that the deduction standards should be set based on the family as a whole, while 29.47% of households believe that separate deduction standards should be set for the first home and other properties. From the analysis of the survey results, it can be directly stipulated that the interest on the first home loan and the rent for living housing without real estate under the name should be deducted before tax according to the corresponding standards, while the interest on other housing loans should not be included and should be deducted on a household basis.
4.2 The impact of special additional deductions on individual income tax burden
The author uses sensitivity analysis to determine the impact of special additional deductions on individual income tax burden. Based on the average wage data of employed individuals from the National Bureau of Statistics in 2017, representative units are selected for analysis to analyze the impact of special additional deductions on individual income tax. (As shown in Table 4).
Table 4
Average Wages of Employees from Different Units
Employed persons | Number of employed persons | Annual average salary ( CNY ) |
Urban unit | 176438000 | 74300 |
State owned unit | 60638000 | 81100 |
Urban collective units | 4060000 | 55200 |
Other units | 111740000 | 71300 |
Urban private units | 226747000 | 45800 |
Limited Liability Company | 18460000 | 85000 |
Information, computing, and software industries | 3677000 | 13700 |
Financial Industry (Other) | 5037000 | 128800 |
Scientific research and geological exploration industry | 2100000 | 117100 |
Financial industry (urban collective) | 420000 | 99600 |
Note: The data is sourced from the National Bureau of Statistics. |
On August 31, 2023, the State Council raised the special additional deduction standards for personal income tax on the care of infants and young children under the age of 3, child education, and support for the elderly. The adjusted deduction standards will be implemented from January 1, 2023, and the adjusted special additional deduction standards are shown in Table 5.
Table 5
Deduction Standards for China's Individual Income Tax Annex
Project | Monthly deduction standard(CNY) | Remarks |
Children's education | 2000/person | Taxpayers of full-time academic education and preschool education |
Continuing education | 400 | The deduction period for the same education/degree shall not exceed 48 months |
Serious illness medical treatment | Limit 80000 /year | The accumulated personal burden exceeding 15000 after deducting medical insurance reimbursement from medical expenses |
Housing loan interest | 1000 | The maximum deduction period shall not exceed 240 months |
Housing rent | 1500/1100/800 | 1500 yuan per month for municipalities directly under the central government, provincial capitals, and cities specifically designated in the state plan; 1100/month for other cities with a registered residence population of more than 1 million; 800 cities with a registered residence population of less than 1 million per month |
Supporting the elderly | 3000 | The dependent is their own parents who have reached the age of 60. The amount shared by each person cannot exceed 1500 per month |
Care for infants and young children under 3 years old | 2000 | |
(1) Individual income tax burden when excluding special additional deductions.
Monthly personal income tax=(pre tax income − 3500- individual borne three insurances and one fund) * tax rate - quick calculation deduction amount
Assuming that an individual bears 16% of their salary for the three insurances and one fund (usually 10% for the three insurances and 6% for the housing provident fund), sensitivity analysis is used to calculate the taxable income and personal income tax payable based on the average annual salary of different units.
Table 6
Individual income tax payable by different units (excluding special additional deductions)
Annual average salary | Average monthly wage | Monthly three insurances and one fund | Taxable income | Individual income tax |
74300 | 6191.66 | 990.67 | 1700.99 | 65.10 |
81100 | 6758.33 | 1081.33 | 2177.00 | 112.70 |
55200 | 4600.00 | 736.00 | 364.00 | 10.92 |
71300 | 5941.67 | 950.67 | 1491.00 | 44.73 |
45800 | 3816.67 | 610.67 | -294.00 | 0.00 |
85000 | 7083.33 | 1133.33 | 2450.00 | 140.00 |
137000 | 11416.67 | 1826.67 | 6090.00 | 663.00 |
128800 | 10733.33 | 1717.33 | 5516.00 | 548.20 |
117100 | 9758.33 | 1561.33 | 4697.00 | 384.40 |
99600 | 8300.00 | 1328.00 | 3472.00 | 242.20 |
Without considering special additional deductions, if the applicant's annual salary income exceeds 80000 yuan, the family's monthly personal income tax deduction will exceed 100 yuan; If the applicant's annual salary income exceeds 120000 yuan, they will have to bear a relatively heavy tax burden every month.
(2) Consider the individual income tax burden when considering special additional deductions.
Monthly personal income tax=(pre tax income − 5000- personal insurance and one fund - special additional deduction) * tax rate - quick calculation deduction
Assuming that the monthly special additional deduction for both spouses is 3000 yuan (500 yuan/month for mortgage interest, 1500 yuan/month for elderly care, and 1000 yuan/month for child education), assuming that the individual bears 16% of their salary for three insurances and one fund.
Table 7
Personal income tax payable by different units (considering special additional deductions)
Annual average salary | Average monthly wage | Monthly three insurances and one fund | Special additional deduction | Taxable income | Individual income tax |
74300 | 6191.66 | 990.67 | 3000 | -2799.01 | 0 |
81100 | 6758.33 | 1081.33 | 3000 | -2323.00 | 0 |
55200 | 4600.00 | 736.00 | 3000 | -4136.00 | 0 |
71300 | 5941.67 | 950.67 | 3000 | -3009.00 | 0 |
45800 | 3816.67 | 610.67 | 3000 | -5134.00 | 0 |
85000 | 7083.33 | 1133.33 | 3000 | -2050.00 | 0 |
137000 | 11416.67 | 1826.67 | 3000 | 1590.00 | 47.70 |
128800 | 10733.33 | 1717.33 | 3000 | 1016.00 | 30.48 |
117100 | 9758.33 | 1561.33 | 3000 | 197.00 | 5.91 |
99600 | 8300.00 | 1328.00 | 3000 | -1028.00 | 0 |
When the monthly special additional deduction for an individual is 3000 yuan, the average annual salary is below 100000 yuan, and the personal income tax is 0; The average annual salary is over 100000 yuan, and the personal income tax is also relatively small; When the average annual salary approaches 140000 yuan, the monthly personal income tax also exceeds 50 yuan.
From the above analysis, it can be concluded that when considering special additional deductions and not considering special additional deductions, the tax burden of individual income tax increases from 3500 yuan/month to 5000 yuan/month. When considering special additional deductions, assuming a monthly deduction of 3000 yuan, the tax burden decreases significantly, especially when the average annual salary of an individual is 137000 yuan, The personal income tax will decrease from the original 663 yuan/month to 47.7 yuan/month, only 7.19% of the original personal income tax. This cost greatly reduces the tax burden on Chinese citizens, reduces the per capita income level, and better reflects the principle of fairness in personal income tax.