The modified Individual Income Tax Law and its Regulations for Implementation has become effective since March 1st, 2008. Compare to the past Individual Income Tax Law, the main changes in this new version are as follows: first, the expenses reduction standard for wages and remuneration has been changed to RMB 2,000 Yuan per month from 1,600 per month; Second, the taxable income standard between normal citizens and persons with foreign factors has been reduced; third, it was explicitly and clearly prescribed that the individual income shall include not only cash, goods and securities but also other forms of economic interests. We can find that these modifications effectively and sufficiently incarnate basic principle of tax law: Fair Taxation.

The principle of fair taxation is embodiment of fair principle in tax law and its basic requirement is to impose tax generally and fairly which includes that the persons that have ratepaying ability shall all pay taxes, the persons that have same ratepaying ability shall pay same taxes and the persons that have differrent ratepaying ability shall pay different taxes. This fair taxation is the precondition for maintain normal operation of the revenue system and can prevent the adverse effects arising out of huge gap between the rich and poor, and also the fundamental embodiment of the People’s Democracy in tax laws. We can conclude that this principle and its requirement is the proper direction for reform of revenue system. Therefore, the provisions that violate this fair principle shall be modified, as these modifications in new Individual Income Tax Law and its Regulations for Implementation. We can analyse the modifications respectively as below:

I. To meet the requirement that the persons that have ratepaying ability shall all pay taxes, there should be a precondition that the the basic life requiremet of the taxpayers shall be met. If the basis life requirement cannot be met due to paying taxes, then it is absolutely unfair. We can find that in the past years, the modification that change the reduction standard from 800 per month to 1,600 per month really promote the economic development, but still cannot achieve satisfying status from the angle of fair. To make 1,600 per month as the reduction standard now is difficult to assure the achievement of the basic life requirement because the ratepaying ability has relatively decrease due to the economic development and increase of consume requirement. According to relevant reports, the per capita consume expenses of urban residents in the first to third quarter of 2007 is 7,395 Yuan. Each employee in one urban family will afford consume expenses for 1.93 persons, then the per capita consume expenses will be 19,030 Yuan per year and 1,586 Yuan per month. This calculation still does not include the increase of basic life expenses due to the rise in price, such as the the 6.5% rise of CPI and 18.2% rise of Food Consume Price Index which is closely connected to life in August of 2007. In addition, the present revenue system includes the taxation for some basic expenses such as house and medical which are afforded by nation and various levels of governments in the past. Therefore, to consider all the factors sufficiently, to increase the reduction standard properly could assure the achievement of basic life requirement at certain extent and at the same time pay sufficient attention to the bear ability for finance revenue reducing. This modification is embodiment of fair principle but does not excessively affect the reallocation of social interests for fair by the nation.

II. To meet the requirement that the persons that have same ratepaying ability shall pay same taxes, there should be a principle that the national treatment shall be executed effectively and sufficiently and there will be no different treatment for taxpayers exists. This national treatment commonly means that the treatment given to foreigners within its territory shall be the same with or not lower than that given to its own citizens without any prejudice. In our nation, there is no any prejudice in the taxation standard; on the contrary, the taxation treatment given to persons with foreign factors is “Supernational Treatment” which is more favourable than that given to normal citizens. We can find that to give this more favourable treatment is not want to violate fair principle but just for introducing more foreign investments and more advanced technologies and management experiences into our country in order to enhance our country’s economic strength and achieve more satisfying level of social fair. However, it is not essential and no need for us to excessively adopt favourable policies for introducing foreign investments, advanced technologies and management experiences as the economy has devoloped sharply and the investment circumstance has been greatly improved. Therefore, to properly reduce the gap in tax reduction standard between normal citizens and persons with foreign factors in this appropriate juncture and creat condition for ultimately getting rid of the differrences are essential for the development of society and economy and are the substantial embodiment of fair taxation principle. We can conclude that to change the additional expenses reduction standard for persons with foreign factors from 3,200 Yuan per month to 2,800 Yuan per month when change their reduction standard from 1,600 Yuan per month to 2,000 Yuan per month is not only an active and positive transition which incarnates fair principle, but also proper action which can maintain the continuity of policies. However, to see from the trend of development and ultimate purpose, this difference between normal citizens and persons with foreign factors shall be totally eliminated and there shall be no unfair form in tax laws which will hurt the positivity of the vast labourers, especially that most of these persons with foreign factors, as the special taxpayers, just are high-income persons in our society.

III. To meet the requirement that the persons that have differrent ratepaying ability shall pay different taxes, there should be a direction that the taxpayers shall be imposed taxes according to their actual income and the social fair will be violated if taxpayers do not pay taxes for their taxable income. It is explicitly and clearly prescribed in the modified Regulations for Implementation of Individual Income Tax Law that the individual income includes not only cash, goods and securities, but also other forms of economic interests. This modification, paying sufficient attention to various kinds of individual income, is the active measure for reduce revenue losses and solve the problem that the fair just exists on the surface but not in fact; at the same time, it bring out clear requirement for enhancing supervision and standardizing taxpayer’s obligations. This modification not only creat condition for achieving fair taxation, but also establish base for achieving fair and harmony of society. However, the tax rate is not the high, the better. The tax laws shall also be good for enhancing production positivity of labourers when require them to pay taxes subject to laws and regulations. Excessively high tax rates may lead to reduction of production positivity. therefore, USA has changed its past 14 –level progressive tax rates ranging from 11% to 50% to two level as 15% and 28%; England has changed its past 6-level progressive tax rates ranging from 27% to 60% to two levels as 25% and 40%. To see from the development trend, for more greatly enhancing positivity of labourers possessing high-technology, high-knowledge and high-creativity, to properly reduce the highest level rates in our progressive tax rates is an active and positive choice which also is good for achieving more satisfying level of fair effectively.

To conclude, the modified Individual Income Tax Law and its Regulations for Implementation effectively and sufficiently incarnate the principle of fair taxation and absolutely will give active and positive effect on promoting social fair and establishing harmonious society.