Workers to pay income tax for annuities

The country plans to accelerate the development of annuities and commercial insurance to build a multi-tiered social security system, according to a landmark reform plan released last month by the Communist Party of China.

Experts believe the new move will not only benefit Chinese workers, but also encourage companies to enter the annuity system.

Zhu Qing, a professor with the Renmin University of China, told Xinhua that the policy will mean a drop in income tax rates for Chinese workers.

As China adopts progressive rates for income tax, annuity income tax in the future will enjoy a lower rate as workers usually receive less after retirement, Zhu said.

"Another advantage for workers is a substantial drop in the income tax's present value," according to Zhu.

Taking into consideration the time value of money, a tax of 100 yuan in the future is worth much less than the same amount of tax paid now, he explained.

Jin Dongsheng, deputy head of the taxation research institute under the State Administration of Taxation, said the tax preference will offer incentives for companies to establish an annuity system, which helps promote the building of a comprehensive old-age pension scheme.

"A key for the annuity system's development is how to realize regulation-based management of annuities," Jin said.

In addition to the tax preference policy, China should also make higher-level laws and regulations on annuities to facilitate standardized annuity management, according to Jin.