Taxation in the People's Republic of China

By Jinyan Li | Go to book overview

7
Local Taxes

CENTRAL-LOCAL GOVERNMENT RELATIONSHIP

Upon the establishment of the People's Republic, China adopted a centralized political and economic structure. For historical, cultural, and ideological reasons, great emphasis has always been placed by Chinese rulers on unity, harmony and a strong state. A major concern of the government has been to bind together the strands of regional interests and loyalties to the Chinese Communist Party while, at the same time, allowing for some degree of local initiative and policy adaptation. The legal and fiscal systems are highly centralized, with power concentrated in the hands of the Central Government. All major economic plans are formulated under the direction of the State Council--the highest administrative body of the country. The fiscal system has been characterized as "uniform receipts and expenditure" (tong shou tong zhi), meaning all revenue and expenditure must be handled by the Central Government. However, in a huge country like China, where economic developments and cultural backgrounds vary greatly from region to region, centrally issued policies and regulations tend to be interpreted in diverging ways by local authorities to best suit their local interests. Underneath the surface of a highly centralized hierarchy, "regionalism," or "localism," has always existed and has become more obvious since the adoption of the new economic policies. Enterprises are mostly under the administrative control of local governments. 1 They often bypass the instructions issued by the central planning commissions in order to avoid the rigidity that the planning process involves. In attempting to maximize their objective functions, local governments often intervene in the management of enterprises situated in the region, sometimes without a sufficient legal base; in other cases they form an alliance with local businesses against the Central Government to protect local interests. In practice there is no clear delineation of powers between the central and local governments.

The current economic reforms further decentralized economic powers. Poor planning and ad-hoc reform policies have created the conditions for a kind of "economic warlordism" in China. Some provinces, notably Guangdong, Fujian, and Hainan, have been designated as "pioneer" provinces to experiment with the

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Taxation in the People's Republic of China
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Preface ix
  • 1 - Evolution of China's Tax System 1
  • Notes 26
  • 2 - Taxation of Goods and Services 31
  • Notes 45
  • 3 - Income Taxes on Individuals 51
  • Notes 63
  • 4 - Income Taxes on Domestic Enterprises 69
  • Notes 87
  • 5 - Income Taxes on Foreign Investment 99
  • Notes 116
  • 6 - Agriculture Tax 125
  • Notes 133
  • 7 - Local Taxes 137
  • Notes 146
  • 8 - Evaluation of the Current Tax System and Prospects for Future Reform 151
  • Notes 173
  • Selected Bibliography 177
  • Index 191
  • About the Author 195
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