What Is a Marginal Tax Rate?

The marginal tax rate (MTR) is the ratio of the tax amount to the increase in the amount of the taxable object. For example, if the amount of personal income is more than 5,000 yuan, the tax exemption is 5,000 yuan, and the marginal tax rate is zero. When a person's monthly income reaches 5,700 yuan, compared with an increase of 5,000 yuan to 700 yuan, a tax of 21 yuan should be paid according to the applicable tax rate. Of course, this is calculated in the absence of housing provident fund, pension insurance, etc. of. At this time, the marginal tax rate is 21 yuan ÷ 700 yuan = 3%. When the amount of income is 45,000 yuan, the increment becomes 40,000 yuan, the tax rate is 10%, the quick calculation deduction is 2520, and a tax of 1480 yuan is paid, and the marginal tax rate becomes 3.7%.

Marginal tax rate

The marginal tax rate refers to the ratio between the amount of tax paid and the increase in income when increasing some income. Here, the average tax rate is relative to the marginal tax rate, which refers to the ratio of the total tax amount to the total income. Under the condition of proportional tax rate, the marginal tax rate is equal to the average tax rate. Under progressive tax rates, the marginal tax rate is often greater than the average tax rate. An increase in the marginal tax rate will also increase the average tax rate. The greater the increase in the marginal tax rate, the more the average tax rate will increase, and the stronger the ability to regulate income, but the greater the anti-incentive effect on taxpayers. therefore. The comparison between the two is easy to show the progress of the tax rate and the changes in the tax burden.

The highest marginal tax rate for personal income tax wages in China is 45%. From the perspective of countries in the world, especially developing countries, there are very few countries and regions that adopt such high tax rates. The tax rates for Hong Kong are 2% to 15%, Singapore is 2% to 28%, Canada is 17% to 29%, Japan is 5% to 45% ^[2] , and the United States is 15% to 39%. A 50% personal income tax is levied on Australian annual income of 20,000.

On December 29, 2007, the 31st Session of the Standing Committee of the Tenth National People's Congress passed a decision on amending the personal income tax law. The personal income tax threshold will be increased to 2,000 yuan from March 1, 2008. The starting point for personal income tax in 2013 was 3,500 yuan. On August 31, 2018, the decision to amend the Personal Income Tax Law was passed with a starting point of 5,000 yuan per month. The latest starting point and tax rate will be implemented from October 1, 2018.