context: The current system of central–local tax division was largely shaped by the reforms from 1994, whose major purpose was to raise the proportion of central government tax revenues. After the income tax reform in 2002 and full-fledged VAT reform in 2016, inefficient local tax collection and inadequacy of major local taxes make tax collection reform an urgent matter.
At a high-level seminar on 1 June, officials discussed acceleration of central–local tax agency consolidation and tax collection reforms. The reforms are a key component of the broader agenda to revamp Party and state institutions as directed at the 19th Party Congress, says Han Zheng 韩正 CPC Politburo Standing Committee member and State Council vice premier. Emphasising Party leadership, Han writes on the urgency of tax collection reform and calls for strengthening coordination in all government bodies to
- ensure taxation security and stable growth
- improve taxation services
- implement preferential tax policies
- improve the business environment
The reforms are more than a simple merging of central and local taxation agencies; they are a systemic overhaul of leadership, function, management, and responsibilities, says an industry expert. Changes in tax collection and taxpayer facilitation are the two major focuses, according to 21st Century Business Herald.
The new taxation super-agencies will also be responsible for collecting multiple non-tax revenues and social security funds. This is an important change because it regulates institutional arrangements for non-tax revenue collection, lowers collection costs while improving efficiency, and facilitates a unified distribution system for taxation and public funds, says Hu Yijian 胡怡建 Shanghai University of Finance and Economics professor. By reducing institutional transaction costs, the reforms benefit both collectors and taxpayers, says Yang Zhiyong 杨志勇 Chinese Academy of Social Sciences (CASS) researcher.
The reforms will profoundly influence local economies and government behaviour; a vertically managed system will reduce the gap between statutory and real tax rates, specify tax expectation for enterprises, and ensure implementation of tax rebate policies, argues Fan Ziying 范子英 Shanghai University of Finance and Economics professor.
Difficulties abound, however, including not only bureaucratic challenges but coordination and adaptability of the tax collection system itself, says Tang Jiqiang 汤继强 Southwest University of Finance and Economics professor.