D.C. City Council member John A. Wilson (D-Ward 2) said yesterday that a proposal to allow residents to contribute money from income tax refunds to political parties will be revised to remove restrictions on how the money is spent and to eliminate a requirement that the money be placed in a special fund.

D.C. Republican Party Chairman Ann F. Heuer had criticized the proposal as a way for Democrats to use the government as a fund-raising agency and was about to testify during a public hearing yesterday when Wilson announced that he planned to make major changes in the bill.

Wilson, who introduced the legislation, said provisions that should have been removed from the bill during a revision were inadvertently left in. One of the provisions would have established a political party fund, to be administered by the mayor, that would contain the funds transferred from income tax refunds.

The other provisions would have required a political party to have 5,000 members before it could qualify for funds and prevented any party . . . The District might collect as little as $11,000 annually. from using its funds to promote or retire the debts of its candidates.

But even with the changes, questions were raised during the hearing about whether the proposal would cost the District money.

Melvin W. Jones, director of the D.C. Department of Finance and Revenue, said it would initially cost the city about $30,000 to administer the fund and that based on the experiences of states with similar laws, the District might collect as little as $11,000 annually.

City Council member Carol Schwartz (R-At Large), the only Republican on the council, said the proposal gives the perception of "the big power structure wanting more power" and that she hoped the bill "stays in this committee until death does it part."

Wilson said there is "no fence" around the city's Democrats and that the inability of a party to attract members is not a concern for the council. He said the intent of the proposed bill is to allow residents to contribute money to a party of their choice.