China eases tax burden on poor with law change

[June 30, 2011]  BEIJING (AP) -- China's legislature approved a measure Thursday to ease the tax burden on the country's poor in the government's latest effort to defuse tension over surging inflation and a yawning wealth gap.

The legislature raised the minimum income on which workers must pay taxes from 2,000 yuan ($300) to 3,500 yuan ($540) a month.

The change follows repeated government promises to help China's poor majority amid rising prices that pushed inflation to a 34-month high of 5.5 percent in March, driven by a double-digit jump in food costs.

"It is a serious attempt to maintain social stability and redress the problems of inflation," said Steve Tsang, director of the China Policy Institute at Britain's University of Nottingham.

Inflation is dangerous for the communists because it erodes economic gains that underpin the ruling party's claim to power. Food costs are especially sensitive because poor families in China spend up to half their incomes on food.

Lawmakers wanted to reduce the tax burden on low-income workers and "adjust the distribution of income," the official Xinhua News Agency said.

The government also has promised hefty increases in social spending to help narrow the gap between a small elite who have profited from three decades of economic reform and China's poor majority.

Communist leaders declared controlling inflation their priority this year but prices have continued to climb despite four interest rate hikes since October and curbs on lending and investment.

The investment bank UBS said this week June inflation might rise as high as 6.5 percent after the cost of vegetables and pork jumped following floods that damaged crops in China's south and east.

"A steady improvement in living conditions is what people have been led to take for granted" as part of an unspoken "social contract" under which the communists remain in power, said Tsang.

"If you were earning enough to pay tax so you are not at the bottom of the pile but what you can really afford has been eroded in the last couple of years, then this could not have come soon enough," he said.

[Associated Press; By JOE McDONALD]

AP researcher Yu Bing contributed.

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