China plans to utilize the income tax in order to reign in the ever-widening income gap, the China State Administration of Taxation announced on Wednesday.

To further enhance the role taxation plays in income distribution, China will tighten taxation policies on individuals with a yearly income of 120,000 yuan or more, according to China State Administration of Taxation.

With the rapid development of China's economy, incomes are growing and the gap between the rich and the poor is widening. As of the end of March 26, 2010, a total of 1.18 million people with a yearly income amounting to 120,000 yuan or more have claimed the individual income tax.

China issued a circular on management of individual income tax in 2006, which require individual earning more than 120,000 yuan annually need to report their income directly to the tax authorities.