Reform of the Fiscal and Taxation Systems

From: English Edition of Qiushi Journal Updated: 2011-09-19 18:04
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 We must improve our understanding to increase our sense of urgency and resoluteness in deepening reform of the fiscal and taxation systems.

 China has been constantly carrying out reform of the fiscal and taxation systems since the institution of the reform and opening up policy, markedly increasing national fiscal strength, constantly improving the structure of budgetary expenditures and steadily improving financial management, which has significantly contributed to sustaining and stabilizing the overall situation of reform and development. In particular, when confronted with the severe impact of the global financial crisis, the CPC Central Committee and the State Council decisively implemented a proactive fiscal policy and an appropriately easy monetary policy, and actively took advantage of the function of public finance, which played an important role in effectively restraining the slump in the economic growth rate and helped China take the lead in overall economic turnaround. At the same time it should be noted that there are still some outstanding issues in China’s fiscal and taxation systems that we need to seriously address and concentrate on resolving. These mainly include: the revenue system needs to be improved, financial resources and government authority are not properly matched, there are holes in the government budget system, the legal framework for financial management and performance needs to be improved and the role of macroeconomic regulation of public finance needs to be strengthened. 

 The current reform of the fiscal and taxation systems will focus on promoting equal access to basic public services and developing main-functional zones. We will be working to improve the public finance system, deepen reform of the budget system, tighten budgetary management and oversight, ensure that the financial resources of the central and local governments are more in line with their powers, accelerate the establishment of a unified, standardized and transparent system for transfer payments, and increase spending on public services. We will improve fiscal systems at and below the provincial level to strengthen the ability of local governments to provide public services. We will reform fiscal and taxation systems to bring them in line with scientific development and develop a sound compensation system for the use of resources and for damage to the ecological environment.

 We need to accelerate improvement of the taxation system to standardize order in government involvement in the distribution of national income.

 In accelerating improvement of the taxation system, we will follow a principle of simplifying the taxation system, broadening the tax base, lowering tax rates and strengthening the collection and management of tax revenue. We will improve the structure of the taxation system, make the distribution of the tax burden fairer and standardize order in income distribution in order to promote sound economic development. We will gradually increase the proportion of direct taxation and expand the role of taxation in adjusting income distribution. We will vigorously work to integrate components of the personal credit rating system such as income declaration and asset registration with the management of household registration and promote reform of the individual income tax system to combine general and classified collection. We will strengthen the role of taxation in resource and energy conservation, emission reduction and environmental protection to promote the transformation of the pattern of economic development. We will focus on reforming and improving the resource tax system, improving the system of sales taxes and working out a way to levy environmental taxes to make taxation promote the development of a resource-conserving and environmentally aware society. 

 On the basis of unifying the rates for corporate income tax, vehicle and ship tax, farmland occupation tax and real estate tax for domestic and foreign-funded enterprises, we will continue to unify the urban development and maintenance tax and the education surcharge systems for domestic and foreign-funded enterprises and individuals in order to promote urban development and development of the education system. On the basis of progress in shifting the focus of the value added tax (VAT) from producer to consumer, we will vigorously pursue reform of the VAT to expand its scope to guide the development of related industries and promote adjustment of industrial structure and improvement in the level of industrial technology. We will accelerate development of the local tax system to strengthen the ability of local governments to provide basic public services. While unifying tax policies, we will work out ways to grant local governments the appropriate power to administer tax policy and build up their local sources of income so they can be more autonomous in making arrangements for and using their income through increased income from the local level as much as possible, especially for underdeveloped areas in the central and western regions, and compile more detailed budget and be more diligent in fund management.

 We need to deepen reform of the fiscal structure so that the financial resources of the central and local governments are more in line with their powers.

 First of all taking into consideration the basic conditions of the primary stage of socialism, we will adhere to a principle of giving full play to the initiative of both the central and local governments while ensuring basic stability in the framework of the revenue-sharing financial system in working to make the financial resources of the central and local governments more in line with their powers, focusing on promoting equal access to basic public services and developing main-functional zones. We will rationally divide powers and expenditure responsibilities between the central and local governments. On the basis of accelerating the transformation of government functions to be more service-oriented and clearly delineating the functions of the government and the market, we will divide powers and expenditure obligations between different levels of government in accordance with laws and regulations, range of beneficiaries, cost efficiency and a principle of giving priority to lower level governments. We will improve the transfer payment system, raise the scale and proportion of general transfer payments, classify and standardize special transfer payments, and increase the transparency of fund distribution and the effectiveness of utilization. We will improve the fiscal systems of governments at and below the provincial level, accelerate the establishment of a system for guaranteeing basic funding at the county level to strengthen the ability of lower level governments to provide basic public services and make progress in building a new socialist countryside. We will reduce the number of levels in financial management and actively carry out reform of the way public finance is handled while not disturbing operation of the currently practiced administrative management system in order to make management more productive.

  Elderly rural residents in Shouguang County, Shandong Province, looking at their newly obtained deposit books for their pensions on August 19, 2009. In 2009, the central government allocated 728.463 billion yuan for expenditures related to the people’s well-being, including education, medical and health care, social security, employment, subsidized housing and cultural activities. This represents an increase of 165.334 billion yuan on a comparable basis, or 29.4% more than last year’s figure. / Photo supplied by Xinhua

 We need to improve the government budget system to make the budget more comprehensive and transparent.

 Developing a law-based, comprehensive and transparent budget system is an objective requirement for ensuring that financial resources are in line with the power of government and for making overall arrangements for financial resources, as well as an important means of promoting the development of socialist democracy by guaranteeing rights of citizens to be informed about, to participate in, and to oversee public finance. We will step up efforts to better integrate and coordinate the budgets for public finance, operation of state assets, government monetary funds and social safety net and make budgets more comprehensive. We will ensure that key budgetary items are properly funded, appropriately delineate the scope of expenditures, increase funding for weak links in economic and social development, and improve public services and the management of society. In accordance with the principles of working to help as many people as possible, ensure that people’s basic needs are met, help all sectors of society and ensure that the pattern of spending is sustainable, we will strengthen financial support for agriculture, rural areas and farmers, education, science and technology, medical care and public health, culture, social safety net, subsidized housing, energy conservation and emission reduction, and underdeveloped areas, in order to promote economic growth, structural adjustment, balanced development among regions and between urban and rural areas, and improvement in the people’s quality of life. Budgetary revenue and expenditure statistics, as well as government budgets and final accounts, departmental budgets and final accounts, and transfer payments following examination and approval by the people’s congresses, will be promptly made public to enhance budget transparency.

 We must make management more scientific to improve the performance of financial management.

 The level of financial management has a direct effect on the effectiveness of the public finance and the performance of budgetary funds. In accordance with the requirement to make public finance operations comply with the law, be democratic and be scientific, we will work to truly enhance our ability and level in handling financial and tax affairs. We will improve financial legislation by revising the Budget Law and its implementation regulations and actively working to formulate and pass financial laws and administrative regulations such as a law on VAT and interim regulations on the management of transfer payments. We will standardize the operational mechanism for financial work and carefully carry out administrative review of financial decisions. We will improve administrative procedures for the examination and approval of financial decisions and reduce the number of items requiring administrative examination and approval. We will standardize the compilation process for departmental budgets, move up the time allowed to compile budgets and require budgets to be more detailed to make them more scientific and accurate. We will concentrate on the management of budget implementation, by making departmental responsibilities for budget compilation stricter, accelerate the pace of preparing budgetary expenditures, improve the analysis and dynamic monitoring, improve the evaluation system, make budget implementation more balanced, carry out reform of government accounting, tighten the system of limits for expenditure items and improve the system of government reporting on financial accounting. We will strengthen financial oversight by developing an oversight mechanism that covers all government funds and the whole process of financial operations.

 We will strengthen and improve macroeconomic regulation for public finance to promote steady and rapid economic development.

 We will continue to follow a proactive fiscal policy and ensure it stays in line with monetary policy and industrial policy to take good advantage of its regulatory function to promote economic and social development. In addition, we will improve related policy measures to adjust to changes in the economy, make policies more specific and flexible and maintain an appropriate focus, strength and tempo for policies to make economic development steadier, more balanced and more sustainable. We will pay more attention to transforming the pattern of economic development and adjusting the economic structure when formulating and implementing financial policies and carrying out financial work, take full advantage of the ability of financial policy to focus regulation on specific areas and intensify efforts to promote independent innovation and foster the development of strategic new industries to truly improve the quality and efficiency of economic development. We will put more effort into boosting domestic demand, particularly consumer demand, improve the structure of government spending on public projects, implement a policy of structural tax reduction, promote increase in personal incomes, especially in the low-income population, and adjust the distribution of national income. In addition, we will improve the fiscal and tax policies to guide consumer spending and strive to boost consumer demand to maintain steady and rapid economic development. We are devoting more effort to ensuring people’s well-being and improving their lives, making further improvement in the structure of expenditures, and increasing government spending to address weak links in economic and social development. In particular, we are increasing government support in areas that affect the immediate interests of the people such as education, employment, the social safety net, medical care and public health, subsidized housing and environmental protection. We will also strengthen support for the development of old revolutionary areas, ethnic minority regions, border areas and other poverty-stricken areas to promote more balanced economic and social development.

(From Qiushi in Chinese, No. 7, 2010) 

Note: Author: Minister of Finance of the People’s Republic of China

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