Analysis of Personal Income Tax Preferential Policies in China from the Perspective of Charitable Donation

宋承諭

Abstract：In recent years， with China's rapid development of philanthropy， there is much enthusiasm for charitable donation. In this background， how to make the relevant tax policy play a positive role in their charitable giving， especially the personal income tax which is closely related to the donation？ This paper explains theoretical knowledge of pre tax deduction of charitable donation and the current situation of personal income tax preferential policies in charitable giving， compares with the developed countries， and finds out the existing problems in our country and puts forward some related solutions by reading and summarizing lots of papers and literature.

Key words： Personal Income Tax， Charitable Donation， Preferential Policies

1.Introduction

Personal income tax preferential policies are special tax policies. They are beneficial for some particular business and situation. In this paper， the personal income tax preferential policies refer to those policies that aim to help and promote the development of philanthropy in China. Nowadays， philanthropy in China has just started， there is a lot of room for development. At the same time， it needs the support of the government and the help of the policy. Numerous research studies demonstrate consistently that how tax policies promote charitable donation（Wang， 2013； Zhou & He， 2014； Guo， 2014； Jin & Li， 2015； Lu & Liu， 2012）. Some researches analyze income tax incentives for corporate charitable giving （Ren， 2015； Long & Wang， 2013）. They also analyze the role of tax incentives as a tool for charitable giving （Huang & Wu， 2015）. However， the literature on tax preferential policies has focused mainly on the tax system， i.e.， it is not specific to a particular category of taxes. Under the background that the philanthropy in China needs to develop， the interest in researching a specific tax preferential policy has increased. Those of us whose major is Public Finance are especially interested in choosing a specific tax preferential policy to research. So， I choose the personal income tax preferential policies to research charitable donation in China. This paper will involve several specific questions. For example， what is the theory of pre tax deduction of charitable donation？ What are the policies and the differences between China and other countries in the personal income tax preferential policies to charitable donation？ What are the problems in the policies and How to improve？ The study reported here attempted to explore this issue and answer some of these questions by accessing to relevant information and data. A brief introduction of theoretical knowledge of pre tax deduction of charitable donation is presented in partⅡ. In part Ⅲ， the study of the comparison between personal income tax preferential policies for charitable donations in China and international is carried out. In part Ⅳ， the main problems existing in the tax preferential policies for the individual charitable donation in China and some suggestions are discussed， and a brief conclusion is presented in Section Ⅴ.

2.Theoretical Knowledge of Pre Tax Deduction of Charitable Donation

Personal donation tax system mainly refers to the individual citizens to provide social welfare charitable donations to enjoy legal provisions made by tax cuts and the ratio of the object.

2.1 Review about the Theoretical Knowledge

Pre tax deduction of donations is mainly divided into full deduction and partial deduction. At present， the individual citizens donate after a certain amount of public welfare and relief donations， to pay income tax in accordance with the law， is the main form of public welfare donation tax incentives， and it is also the international practice.

2.2Three kinds of the Theoretical Knowledge

In general， there are three kinds of theories on the international pre tax deduction of personal donation.

The first is that donation tax deduction is the requirement and reflection of the horizontal equity of tax. Namely， in the calculation of taxable income， the share of the donation cannot be used as a basis for the measurement of individual tax capacity， on the contrast， it should be deducted to show the fair tax burden.

The second is that pre tax deduction is a means to encourage the generosity of social subjects. This view thinks that the donation is a humanitarian altruistic behavior， and the donation to the implementation of pre tax deduction is a reward for this kind of generous behavior， that is， by the way of tax incentives to reward.

And the third is that pre tax deduction is a way for the state to finance public welfare undertakings. In this view， different from the direct funding of public organizations in the country for donation deduction， pre tax deduction for donations is the way that the state indirectly fund public welfare.

3.Personal Income Tax Preferential Policies for Charitable Donations in China and its International Comparison

3.1 Personal Income Tax Preferential Policies for Charitable Donations in China

At the present stage， our country public welfare donation individual tax preferential policies mainly reflect the following characteristics.

The scope of public welfare donation is limited. According to our country "the public welfare donation law"， public welfare is the four major categories of nonprofit. Therefore， individual donation must be non-profit public welfare， can enjoy national preferential tax.

The public donation must be carried out by specific institutions. Notice of the Ministry of finance， the State Administration of Taxation， the Ministry of civil affairs and the Ministry of Civil Affairs on

the issue concerning the pre tax deduction of public welfare donations stipulated that only the public welfare social organizations and state organs can accept donations， and public welfare social organizations applying for pre tax deductions for donations shall be subject to annual inspection and other standardized management.

Public welfare donations must have reasonable limits. "Individual income tax law" stipulates that the individual to the education and other public welfare donations to the part， in accordance with the relevant provisions of the State Council shall be deducted from the taxable income. The donation amount is not more than 30% of the taxable income of the taxpayer， which can be deducted from the amount of taxable income.

The public donation must obtain valid certificates as the basis of deduction. The taxpayer donated by social organizations or state organs， should be made by the central or provincial government departments unified printing of donation bill as tax deduction certificate.

3.2 International Comparison

Different from our countrys charity tax treatment， the world developed countries for the donation of tax treatment more mature.

The United States， Canada and the United Kingdom are higher than our country from the amount of donation. Germany for charity， church organization and the organizations which are dedicated to the pursuit of public welfare donation， can be deducted in the next 7 years more than a certain amount. For the welfare of individual donations， Canada gives the minimum federal and provincial progressive tax rate.

Compared with the pre tax deduction of personal welfare donations in developed countries， the tax system in China on the public welfare donation person either in standard or in the deduction rate differs. The developed countries have a certain reference value for the improvement of the relevant tax policies of individual charitable donations in our countries.

4.The Main Problems Existing in the Tax preferential Policies for the Individual Charitable Donation in China and Suggestions

4.1 The Main Problems

Policy regulation differs for different public welfare institutions， and there is a lack of emergency response mechanisms. Personal income tax law provides that the donation can be deducted on the basis of the amount of taxable income of 30%， the part of the national charitable organizations to make a special provision can be pre tax deductible in full. The franchise is unfair to most other charities. To a certain extent， it affects the development of public welfare groups. At the same time， as a result of personal donation tax incentives to a single document as the carrier， the policies are targeted and have timeliness， so they cannot play a role in time when the country suffers sudden disaster.

Policy is not perfect， and the implementation of the link is not easy to operate. There are 3 problems. The first problem is that personal donation deduction ratio is low. And the second problem is that donation cannot be deducted extended？upon？expiration. The third problem is that there is no specific provision concerning the method of individual income tax on individual donations from a number of taxable income.

The lack of supervision and management of public welfare social organizations needs to be strengthened. In our country， it is required that the competent tax should be organized to examine the use of nonprofit public welfare social organizations and foundations to receive public welfare donations. However， the effect is not obvious because of the short execution time. And now there is a lot of deviation from the purpose of charitable giving.

Estate tax and gift tax is relatively backward， and lack of system to promote the donation behavior. Practice has proved that the high inheritance tax and gift tax will have a great impact on the donation. But our country has not yet imposed such taxes， as a result， a lot of the rich would leave their own property to their offspring rather than donate out.

4.2 Suggestions

Combined with the individual income tax reform， legislate for tax about charitable donation uniformly. At present， our country has a low level of legislative level. And normative documents content is messy， lack of systematic， cannot coordinate with each other， which is not conducive to the use of tax to promote the healthy development of social welfare undertakings. So we need to strengthen the relevant legislation.

Improve the donation tax policy， and improve the tax incentive mechanism. In this part， there are 3 things that we need to do. The first is that in the pre tax deduction of existence the highest proportion restriction conditions， of individual single donation amount reach or more than in the amount of taxable income in a certain proportion can be considered additional deduction or after a certain period of time deferred deduction. The second is that for individual donations from more than one of the taxable items， should be clearly defined in accordance with the different items of income tax rate from high to low tax deduction principles or methods according to personal income accounted for the proportion of total income net of the average current. The third is that increase the relevant provisions on the kind donation.

Strengthen the collection and management of public welfare organizations， and improve the overall management of the charity. Only from the aspects of system construction， government management and some other aspects to play the role， can make the operation of public welfare is a virtuous cycle， exert its social effect.

Promote the inheritance tax and gift tax legislative work. Estate tax and gift tax is an integral part of the complete donation tax policy system.

5.Conclusion

This paper introduces the theory of tax deduction of charitable donations， analyzes the current implementation of the tax policy and puts forward some suggestions on improving the personal income tax preferential policies. The purpose of this paper is to analyze the current situation and system of personal income tax preferential policies in charitable donations， and hope to put forward some effective suggestions to improve the relevant tax policies and systems. In comparison with other similar papers， this paper gives a detailed analysis of the relationship between personal income tax and charitable donation， and it also finds some problems and puts forward some related suggestions.

References

[1]Guo， Peixia. 2014. Tax incentives and policies to promote charitable giving. Tax Economic Research， 84， 24-28.

[2]Huang， Xiaorui.， & Wu， xianhua. 2015. A policy tool for charitable giving： tax incentives. Journal of Wuhan University， 68， 028-033.

[3]Jin， Dongsheng.， & Li， Yonggang. 2015. Improve the tax policy to charitable organizations. Chinese Civil Affairs， 5， 24-27.

[4]Lu， Wei.， & Liu， Xifa. 2012. The perfection of the tax incentive policy system of China's Philanthropy. Jiangxi Social Sciences， 2， 82-85.

[5]Ren， Haiqiong. 2015. Analysis of income tax incentives for corporate charitable giving. Academic aspect， 297， 107-108.

[6]Wang， Lihui. 2013. Research on tax policy of charitable donation incentive. Fiscal and financial， 6， 82-83.

[7]Long， Zhaohui.， & Wang， Jie. An empirical analysis on the charitable donation of Guangdong listing Corporation before and after the reform of the enterprise income tax. Tax Economic Research， 79， 90-95.

[8]Zhou， Yan.， & He， Hui. Research on the improvement of the tax policy of domestic charitable donation. Journal of Guizhou Commercial College， 26， 34-37.