Chapter 4 deals with the individual income tax, a tax first introduced in China two-thousand years ago. It examines the evolvement of the individual income tax system and compares the changes in the marginal and average tax rates in recent decades based on the constant retail price index, showing that marginal tax rates have declined significantly for low- and middle-income earners. It unravels the mystery of the small proportion of the individual income tax in total tax revenue despite high marginal tax rate for the individual income tax. It discusses the optimal marginal and average income tax rates for China, showing that the optimal marginal tax schedule is quite flat when income is beyond a certain level. The chapter ends with an analysis of the problems of the individual income tax system and offers suggestions for further individual income tax reforms.