4.To adjust the preferential policy on income tax
　
　
　
　The preferential policies on income tax are a handicap to combine the two income tax regulations, which are applicable respectively to Chinese-invested enterprises and to Foreign-invested enterprises. The present income tax law manipulates some complicated preferential policies on the enterprises of different ownership, in different regions, on different trades and productions. Though those preferential policies have played an active role to some extent, and some of them have to be kept in order to maintain their coherence and consistence, yet they are still the handicap to set up a fair competition environment and to perfect a general investment environment. So in light of the requirement of the development in the reality, all the preferential policies must be adjusted to a uniform condition. Especially after China entering WTO, it is a popular proposal to handle FIEs and foreign enterprises with Non-partitioning Treatment. The way to uniform the policies should follow the principles below: Under a general uniform of enterprise income tax, some special preferential policies may be used on the FIEs and foreign enterprises due to special causes, e.g. those enterprises badly needed for developing some special industries of China, or directly reinvest of FIEs, profit collection, tax withholding. The basic industries and high and new technology industries shall be supported and the trend of foreign investment shall be led properly in a selective way. We may take examples from the general international practice, and treat the FIEs and foreign enterprises with a policy of encouraging, permitting, restraining or forbidding in a selective way, in an effort to adopt, to extent possible, national treatment taxation policy to FIEs. Such selective preferential policies are not contradictory to the fact that we will handle FIEs and foreign enterprises with Non-partitioning Treatment. On the other hand, we may pay proper attention to the development balance between different regions under the uniform income tax law. Considering the imbalance of the economic development among the quite different regions of China, some special preferential policies is still necessary on some special regions, e.g. the minority nationality regions, the five special economic zones and Shanghai Pudong New District.
　
　
　
　ii）． Perfection of individual income tax law
　
　The reform of individual income tax laws of the developed countries in a recent decade is generally focused on the Fairness and Efficiency. The priority of such reform is to increase tax base, lessen preferential policies and block tax evasion
　　　　 . In light of the practice abroad and our conditions, it is advisable to perfect individual income tax law in certain aspects as below:
　
　
　
　1.To complete the transition of item-categorized income tax system to a comprehensive classified income tax system
　
　
　
　Theoretically there are three kinds of income taxation systems: item-categorized income tax system, comprehensive income tax system and comprehensive item-categorized income tax system. The standpoint of item-categorized income tax system is that income with different nature is taxed differently. That is in the convenience for controlling tax source and saving the collection cost. Yet it does not match the principle of levying tax based on the actual paying ability of taxpayers. On the contrary, the comprehensive income tax system meets the principle of levying tax based on the actual paying ability of taxpayers, yet the collection process is very complicated and may render tax evasion. The system of the comprehensive item-categorized income tax has gained world-wide recognition. It represents a trend of combination of the above two systems. The 1980 Individual Income Tax Law of China once took advantage of comprehensive item-categorized income tax system. Yet the 1987 Provisional Regulations on Individual Regulatory Income Tax used item-categorized income tax system and later the amended Individual Income Tax Law kept item-categorized income tax system. In light of the development trend, the future Individual Income Tax Law should utilize comprehensive item-categorized income tax system. Since the item-categorized tax system, though easy to be manipulated, does not pay proper attention to the taxpayer’s actual paying ability, and the comprehensive income tax system, though having paid such attention, will differentiate between the incomes tax form different incomes. The comprehensive item-categorized income tax system combines the above two advantages. Regrouping wages, salaries, income from contracted or subcontracted operation of enterprises or institutions, income from lease of property, and income from transfer of property into a comprehensive income, they should be taxed at progressive rates after a reasonable expense deduction. As to other income, proportional tax rate should remain applicable. In this way, the comprehensive item-categorized income tax system will work far better in China.
　
　
　
　2.To better the system on taxpayers
　
　
　
　Under the frame of WTO, the taxpayers in every country are individuals and families. In terms of fairness, treating the family as a taxpayer is a rather proper way to tax those incomes from other than labor, e.g. interest, dividend, bonuses and so on. When an individual is treated as a taxpayer, the collection mode of withholding at source will overlook his tax-paying ability. On the other hand, when a family is treated as a taxpayer, all those incomes will be added into family income and will be properly deducted before paying tax. This will well match its tax-paying ability.
　
　
　
　Whether to treat individuals or families as taxpayers mainly depend on the objective value of individual income tax at a particular time. In terms of national revenue, it makes no substantial difference to treat an individual or a married couple as the taxpayer. In terms of efficiency, treating an individual as the taxpayer will influence his investment and work choice, while treating a family as the taxpayer will influence far more factors in that a family is a basic unit of the society and most expense, deposit and investment is carried out in the name of a family. In terms of fair distribution, the difference between individual incomes will inevitably be represented by the difference between family incomes, so the regulation on income can be focused on the family income in the end. Treating a family as a taxpayer will ensure that the families with the same economic income will be taxed the same, which is the most significant advantage. And some social policies may be carried out in this way. For example, tax deduction and exemption may be carried out to the olds and children. In addition, with respect to the current employment pressure, treating a family as a taxpayer will urge the low-paid member of a family to quit his job willingly and hence mitigate the employment pressure.

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