Summary of Key Points
In the first half of this year, China's individual income tax revenue reached 898.2 billion yuan, a year-on-year increase of 13.1%. For the first time in four years, it surpassed domestic consumption tax (867.3 billion yuan), repositioning itself as the third-largest source of tax revenue (with value-added tax and corporate income tax ranking first and second, respectively). The growth can be attributed to three main factors: capital gains accounting for nearly 50% of the total, increased revenues in certain industries, and stricter tax enforcement targeting high-income individuals. Additionally, the role of individual income tax in regulating income distribution has become more evident, with lower tax burdens for ordinary citizens. New regulations have also been introduced to address tax evasion through offshore trusts.
I. Individual Income Tax Reclaims Third Place: The Behind-the-Numbers Comparison and Changes
The rise of individual income tax to third place is the result of two factors:
- Strong Growth: Individual income tax increased by 13.1% in the first half of the year, while consumption tax saw a slight decline (the exact figure is not provided, but it was 30.9 billion yuan less than that of individual income tax).
- Reversal of Position: Individual income tax was last in third place four years ago; now it has surpassed consumption tax once again.
In simple terms, individual income tax revenue grew faster than consumption tax, leading to the change in its ranking.
II. Three Core Reasons for the Rapid Growth of Individual Income Tax
The State Taxation Administration identified three key reasons for this growth:
1. Capital Gains Contribute Nearly Half:
Revenue from capital gains, such as from selling stocks (especially restricted shares purchased before a company's listing and sold after the ban is lifted) and receiving corporate dividends, is subject to individual income tax. This category contributed nearly 50% of the total growth in individual income tax this year, with transfers of restricted shares seeing a 97.6% increase and dividend payments growing by 15.2%.
2. Revenues in Certain Industries Increase:
Industries such as scientific research, technical services, and non-ferrous metal smelting (e.g., copper and aluminum) performed well this year, resulting in higher wages and bonuses for employees, which in turn led to increased individual income tax payments. The scientific research industry saw a 15% increase, while the non-ferrous metal industry experienced a 40.8% growth.
3. Stricter Enforcement on High-Income Groups:
Tax authorities have focused on high-income individuals, ensuring they pay their taxes according to the law. Data shows that the top 1% of earners contribute more than 50% of total individual income tax revenue, and the top 10% account for around 90%. In the first half of this year, an additional 34 billion yuan in taxes and late fees was collected.
III. The Role of Individual Income Tax in Income Distribution
Another function of individual income tax is to redistribute wealth from higher-income earners to lower-income groups. The data clearly demonstrates this:
- Low Tax Burdens for Ordinary People:
During the 2025 annual tax settlement, 200 million people filed their returns, and more than 70% of them did not need to pay any taxes. For those with an annual income below 120,000 yuan, after deducting the 60,000 yuan exemption, social insurance contributions, and various allowances for education, healthcare, and pension expenses, they generally did not or only paid a small amount of tax.
- Low Tax Rates for Most Taxpayers:
More than 60% of taxpayers were subject to the lowest tax rate of 3%, especially those with lower incomes (e.g., earning a few thousand yuan per month).
- Beneficial Deductions:
In the first half of this year, 126 million people benefited from deductions for pension, healthcare, and education expenses, resulting in a tax reduction of 320 billion yuan, an 8.2% increase compared to last year—equivalent to a direct subsidy for these individuals.
In summary, individual income tax primarily targets high-income earners, allowing ordinary people to pay less or no tax at all.
IV. New Regulations on Offshore Trusts: Closing Loopholes for Tax Evasion
The Ministry of Finance and the State Taxation Administration have introduced new regulations regarding offshore trusts to address tax evasion by wealthy individuals. These regulations specify that taxes must be paid at every stage of an offshore trust's establishment and termination. This approach:
- Provides clarity for taxpayers about their tax obligations.
- Prevents tax evasion through offshore trusts, promoting fairness.
- Protects the country's tax revenue.
In other words, these new rules ensure that even assets held overseas are not exempt from individual income tax regulation.
Conclusion
The repositioning of individual income tax as the third-largest source of tax revenue reflects the active capital market and the good performance of certain industries. It also highlights the strengthened efforts by tax authorities to manage high-income groups more effectively. More importantly, the role of individual income tax in regulating income distribution is becoming increasingly prominent—higher-income earners contribute more, while ordinary people bear less of the burden. This aligns with future directions for tax reform, such as improving the comprehensive and categorized tax system to better achieve redistribution goals. The new regulations on offshore trusts aim to close loopholes and make taxation more equitable.