Central, local levels to split revenue on even basis
The State Council, China's cabinet, issued guidelines during the weekend urging a rebalancing of revenue sharing between the central government and local governments as the nation implemented its biggest tax overhaul for over two decades.
The value-added tax (VAT) reform, which began on Sunday, is intended to cut costs in various industries including real estate, finance and consumer services, according to the Ministry of Finance (MOF).
The VAT system, which can coexist with the business tax, a levy on gross revenues, has raised issues about double taxation.
The reform will reduce taxes by about 500 billion yuan ($77.28 billion) for companies and individuals in 2016, according to the budget report for 2016 released by the MOF in March. A pilot VAT reform program was launched in 2011, resulting in a total reduction in taxes estimated at 614.2 billion yuan from 2012 to 2015.
The ongoing full-scale reform will include 10 million taxpayers, almost double the number involved in the pilot program, noted a separate post on the MOF's website in April.
However, the change is likely to have an influence on local government finances initially, expert said.
As most business tax revenue currently stays with local governments while 75 percent of VAT revenue goes to the central government, the reform may have certain impact on local fiscal revenues, and the guidelines are seen as "a necessary transition," said Zhang Bin, an expert on taxation at the Chinese Academy of Social Sciences.
The government's document noted that VAT revenue will be split evenly between the central government and local governments. Based on local fiscal revenues in 2014, the central government will remit part of its share of the VAT revenue to local governments to ensure they have sufficient financing resources, according to the government's website.
The guidelines in terms of local government finances took effect from Sunday, which was the same day the full-scale tax overhaul was rolled out.
"It's also an important step of improving the efficiency of the tax distribution system," Zhang told the Global Times on Monday. With more tax reform details to be released in the near future, there will be a better alignment of central and local spending and responsibilities as well, Zhang said.
As of 11 am Sunday, 63,655 VAT invoices had been issued from the first day of the implementation of the tax overhaul, and they were worth 2.75 billion yuan, media reports said on Monday.