China to tax rich more, cap executive pays to cut wealth gap

China income

In a bid to address widening wealth gap, China has unveiled a major plan to reform its income distribution mechanism, proposing to tax the rich and state units more besides imposing caps on salaries of top managers while increasing lower staff pay.

The reform will focus on increasing residents' income, narrowing income distribution disparity and regulate distribution order, a statement issued by the China's cabinet, which approved the 35-point blue print, said.

As per the reform plan, the government will work to double the average real income of urban and rural residents by 2020 from the 2010 level and facilitate the poor to enjoy faster income growth.

The reform also targets raising the proportion of residents' income in the overall national income and spending more government funds on social security and employment.

However the statement said, "deepening the income distribution reform is a systematic project that is arduous and complicated and concerns the reallocation of various interests. There is no way to accomplish it overnight".

The income reform plan was approved as China saw its income gap between new rich and poor was yawning, even with its economy emerging as second-largest in the world.

The Gini coefficient, a rich-poor index, reached 0.474 in China in 2012, higher than the warning level of 0.4 set by the United Nations.

The reform plan was announced as wealth gap was identified as major threat to the ruling Communist Party of China's hold on power.

It came a month ahead of the one-in-a-decade power transfer under which new administration headed by CPC new leader Xi Jinping would take over power from next month replacing Hu Jintao.

The new guidelines offer directions on an extensive range of policy areas such as taxation, subsidies, salary system, financial regulation, household registration and social security.

The guidelines set a target of reducing the number of people living below the poverty line of 2,300 yuan (USD 366) in per capita annual net income at constant 2010 prices by around 80 million as of 2015. That will be a drastic fall from about 128 million in rural areas who were defined as poor in 2011.

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