Docsity
Docsity
Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity

Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan

Guidelines and tips
Guidelines and tips
Sell on Docsity
Sell on Docsity
Docsity AI
Docsity AI
Log inSign up

Prepare for your exams

Study with the several resources on Docsity

Find documents

Prepare for your exams with the study notes shared by other students like you on Docsity

Search for your university

Find the specific documents for your university's exams

Docsity AINEW

Summarize your documents, ask them questions, convert them into quizzes and concept maps

Explore questions

Clear up your doubts by reading the answers to questions asked by your fellow students

Earn points to download

Earn points by helping other students or get them with a premium plan

Share documents
download point icon20 Points

For each uploaded document

Answer questions
download point icon5 Points

For each given answer (max 1 per day)

All the ways to get free points
Get points immediately

Choose a premium plan with all the points you need

Study Opportunities

Choose your next study program

Get in touch with the best universities in the world. Search through thousands of universities and official partners

Community

Ask the community

Ask the community for help and clear up your study doubts

Free resources

Our save-the-student-ebooks!

Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors

China's Fiscal & Tax System: Budget Levels, Revenue Sources, & Decentralization - Prof. Y., Study notes of Economics

University of California - BerkeleyEconomics
Prof. Y. Qian

An overview of china's fiscal and tax system, including its de jure and de facto administrative and fiscal structure, the three categories of government revenue, the historical evolution of fiscal decentralization, and the impact of fiscal contracts on local government incentives. It also discusses the 1994 fiscal and tax reform and the assignment of central and local taxes.

Typology: Study notes

Pre 2010

Uploaded on 10/01/2009

koofers-user-8z2
koofers-user-8z2 🇺🇸

10 documents

1 / 10

Toggle sidebar

This page cannot be seen from the preview

Don't miss anything!

bg1
1
The Tax and Fiscal System
• China is a de jure “unitary state”
• But China resembles de facto federalism in some aspects
• Five administrative and fiscal budgetary levels
– Central
– Provincial (including four special cities)
– Prefecture (including large cities)
– County (including many new cities)
– Township
– (village is not a formal level of government)
• Three fiscal levels in most other large countries
– U.S.: federal, state, county
– Russia: federal, region, city
Categories of Government Fiscal Revenue
• Total revenue = budgetary revenue + extra-
budgetary revenue + off-budget revenue
• Budgetary revenue: taxes
• Extra-budgetary revenue: fees
– Examples: fees collected by public institutions
and administrative agencies; contributions to
social insurance funds
• Off-budgetary revenue: varieties of income
pf3
pf4
pf5
pf8
pf9
pfa

Partial preview of the text

Download China's Fiscal & Tax System: Budget Levels, Revenue Sources, & Decentralization - Prof. Y. and more Study notes Economics in PDF only on Docsity!

The Tax and Fiscal System

  • China is a de jure “unitary state”
  • But China resembles de facto federalism in some aspects
  • Five administrative and fiscal budgetary levels
    • Central
    • Provincial (including four special cities)
    • Prefecture (including large cities)
    • County (including many new cities)
    • Township
    • (village is not a formal level of government)
  • Three fiscal levels in most other large countries
    • U.S.: federal, state, county
    • Russia: federal, region, city

Categories of Government Fiscal Revenue

• Total revenue = budgetary revenue + extra-

budgetary revenue + off-budget revenue

• Budgetary revenue: taxes

• Extra-budgetary revenue: fees

– Examples: fees collected by public institutions

and administrative agencies; contributions to

social insurance funds

• Off-budgetary revenue: varieties of income

Government Fiscal Budgetary Revenue (Share

of GDP)

0%

5%

10%

15%

20%

25%

30%

35%

40%

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 2000 2001Est.

Central Government Share of Budgetary

Revenue and Expenditure

0%

10%

20%

30%

40%

50%

60%

1979198019811982198319841985198619871988198919901991199219931994199519961997199819992000

Revenue

Expenditure

Net Local toCentral Redistrib. Net Central toLocal Redistribution

Regional Decentralization and fiscal reform

• Comprehensive decentralization from central to

local governments

  • fiscal expenditure
  • regulation over local economies
  • supervision of state-owned enterprises
  • local government investment
  • local influence on bank credit

The Average Share of Local Expenditure in

Total Expenditure (1980-92)

(^1980 1981 1982 1983 1984 1985 1986) Year 1987 1988 1989 1990 1991 1992

Fiscal Decentralization in China

• China has always been more decentralized

than most other countries in terms of the

share of local government expenditure in

total government expenditure

• China (1970-79): 49%

• China (1982-91): 53%

• Average industrialized countries: 34%

• Average developing countries: 22%

Fiscal Contracting (1980-93)

• “Fiscal contracting system" between the

central and provincial governments

  • Step 1: central fixed revenue
  • Step 2: sharing schemes applied to the rest

• Main features of the fiscal contracts

– high marginal revenue retention rates

– at extreme, 100% retention rate at the margin

=> "residual claimants"

– intended to be long term (5 years) to minimize

renegotiation

Does Fiscal Contracting Strengthen Local

Government Incentives?

• Interpretations

  • Before the reform
    • almost all revenues were redistributed: no relationship between how much revenue generated and how much revenue to be used
  • After the reform
    • Local government is able to use about 3/4 of budgetary revenue generated from local economy at the margin ex post
    • Local government is able to use almost all of the extra- budgetary revenue generated from local economy

How Do Local Governments Respond to

Fiscal Incentives?

• An increase in the marginal fiscal revenue

retention rate in a province by 10 percentage

points

• An increase of 1 percentage point in the growth

rate of employment of non-state enterprises in that

province (mean is 9 percent)

• Meaning: local fiscal incentives are important

inducement for local economic development.

Fiscal and Tax Reform: 1994

  • From “fiscal contracting” to “separating taxes”
  • Separating “national taxes” and “local taxes”
  • Separating “national tax bureau” and “local tax bureau”
  • Resembles “fiscal federalism” in the U.S.
    • Federal taxes are collected by Internal Revenue Service
    • State and local taxes are collected by state tax bureaus
  • Differences
    • In the U.S., state and local governments determine state and local tax rates
    • In China, only the central government can decide on tax rates
    • But local governments often decide on “fees”

Fiscal and Tax Reform: 1994

• New taxes

  • Value-added tax (VAT) of 17%
  • Individual businesses pay 6% sales tax instead of VAT
  • Corporate income tax of 25% regardless of ownership

• Major features

  • Simplification
  • Uniformity (but VAT has a lower rate for special products)
  • Broadening tax base

Personal Income Tax in China

• Not a major tax yet, but the fastest growing tax

• Very hard to collect, entirely based on

withholding, annual returns started in 2006

• Progressive rates on salary and wages

  • From 5% to 45%, with 5% incremental
  • Based on monthly income
  • But not consolidated

• Flat rate (20%) on interests and “one time income”