In the "Decision on Several Major Issues Concerning Comprehensively Deepening Reform" adopted at the Third Plenary Session of the 18th Central Committee of the Communist Party of China, arrangements were made for the sequence of tax reforms under the requirements of deepening the fiscal and taxation system reform. It pointed out the reform directions for six major tax categories including value-added tax, consumption tax, personal income tax, real estate tax, resource tax, and environmental protection tax. It also clearly stated that "a comprehensive and classified combined individual income tax system should be gradually established.
The Fifth Session of the 13th National People's Congress Standing Committee voted to amend the Individual Income Tax Law. On August 31st, it officially promulgated the President's Order No. 9 of the People's Republic of China, releasing the revised "Individual Income Tax Law", officially kicking off the implementation of individual income tax reform.
The release of the "Individual Income Tax Law of the People's Republic of China" and its implementing regulations, as well as the "Notice of the State Council on Issuing the Interim Measures for Special Additional Deductions for Individual Income Tax" (Document No. 41 of 2018) transformed individual income tax from 11 categories of income to 6 categories of income and 1 comprehensive income category. New special additional deductions such as children's education, continuing education, medical expenses for serious illnesses, housing loan interest, housing rent, and supporting the elderly were added. The release of the "Announcement of the State Taxation Administration on Issues Concerning Relevant Policies Involved in the Comprehensive Annual Tax Return of Individual Income Tax" (Document No. 94 of 2019) and the "Announcement of the Ministry of Finance and the State Taxation Administration on Personal Income Tax Policies for Foreign-Derived Income" (Document No. 3 of 2020) further implemented the special additional deduction policies and relevant regulations for obtaining foreign income, established a reasonable and orderly individual income tax comprehensive annual tax return system, and effectively safeguarded the legitimate rights and interests of taxpayers.
The release of the "Notice on Strengthening Personal Income Tax Tax Credit Construction" (Document No. 860 of the Office of the National Development and Reform Commission and the Office of the State Taxation Administration) signifies the establishment of a personal income tax tax credit record, the improvement of the mechanism for rewarding good behavior and punishing bad behavior, the enhancement of personal information security and rights protection, the effective guidance of taxpayers to be honest in their tax payments, the fair enjoyment of tax reduction benefits, and the promotion of a new stage in the construction of the credit system in the tax field.