Transformation of the Fiscal and Taxation Systems

Series Editor’s Preface: The Year 2020—A Historic Choice of Economic Transformation and Upgrading
Contents
List of Figures
List of Tables
1 Introduction
	1.1 New Stage and New Challenges for China to Achieve Its Strategic Goal of Modernization and an Inevitable All-Round Reform
		The Requirement of the Times to Continue to Promote Economic and Social Transition Under the Concept of “Modern National Governance”
		The Realistic Need for Fiscal and Tax Reform to Support Comprehensive Reform Under the New Normal of Economic Development
	1.2 Philosophical Thinking and Path Choice for Linking the Strategic Goals of Modernization with Inclusive Growth
		Strategic Thinking and “China’s Choice” from a Strategic Perspective
		The Illusion of “Government Can Do Everything” Is False, and the Process of “Welfare Catch-Up” Is Difficult to Avoid Haste
		The Rational Premise of Fiscal and Taxation Services: “Let the Market Fully Play Its Role”
	1.3 Support for Comprehensive Reform of Public Finance: Review and Prospect
		Landmark Significance and Historic Contribution of Tax Distribution Reform in 1994
		The Tax Distribution System Should Be Consistent with the Market Economy
		A Complete and Accurate Understanding of Several Important Points That Should Be Clarified in the Tax Distribution System
		The Proposal of Public Finance and the Construction of Public Finance System
	1.4 The International Practice of Tax Distribution System and Reference to China
		The Basic Situation of the US Tax Distribution System
		Basic Situation of German Tax Distribution System
		Basic Information of Japan’s Tax Distribution System
		Inspiration from Tax Distribution System of Market Economy Countries
		Overview of Fiscal and Tax Management Systems of the Republic of Korea and Hong Kong, China
2 Problem Orientation: Prominent Problems Facing China’s Fiscal and Taxation System
	2.1 Problems to Be Straightened Out of China’s Current Fiscal System of Tax Distribution
		Issues Concerning Administrative Power and Expenditure Responsibility
		Inter-governmental Income and Taxation Issues
		Problems in the Transfer Payment System
		Financial System Problems Below the Provincial Level
	2.2 Insufficient Support of Management System Needed for Policy Optimization and Performance Improvement
		Full-bore Budget Problem
		Performance Management and Accountability Mechanism
		The Reform of Government Accounting System
		Imperfect Audit and Supervision System
	2.3 Issues Related to Fiscal Sustainability
		The Economic Slowdown Has Brought Down the Growth Rate of Fiscal Revenue
		The “Lewis Turning Point” Appears and the Demographic Dividend Disappears
		Infrastructure Investment Space Is Still Considerable, Social Spending Pressure Increased
		Accumulation of Financial Risks
	2.4 Analysis of Resistance and Obstacle Factors of the Reform
		Solidification of the Concept/Understanding
		Legal Restriction and Absence
		Constraints/Generated by Path Dependence
		Resistance from People with Vested Interests
3 Goal Lead: The General Idea, Basic Goal and Path of Fiscal and Taxation System Reform
	3.1 General Idea
	3.2 Basic Goal
		Clearly Define Government Functions and Responsibilities and Financial Functions
		Improve the Division of Governmental Powers and Expenditure Responsibilities
		Reasonably Divide the Tax Base/Tax Rate in Combination with Tax Reform
		Adjust the Fiscal Relationship Between the Central and Local Governments and Improve the Transfer Payment System
		Improve the Budget Management System and Improve the Government Budget System
	3.3 Path
		Take the Government Flattening Reform as the Framework
		The Matching Logic Is Based on Reasonable Adjustment of Power
		Drive Tax Reform and Inter-governmental Income Distribution Reform with the Construction of Local Tax System
		Embody the Principle of Priority of Power in a Standard Transfer Payment System
		Establish a Modern Public Budget Management System as the Basic Support
		Taking the Administration of Creditor’s Rights and Property Rights as Important Elements
4 Practical Operation: Build a Modern Fiscal and Taxation System Suitable for the Modernization of National Governance
	4.1 Form a Scientific and Standardized Inter-governmental Financial Distribution Relationship
		Clearly Define the Functions and Responsibilities of the Government, and Scientifically Divide the Inter-governmental Powers and Expenditure Responsibilities
		Improve the Division of Government Revenue to Meet the Needs of Changing the Growth Model
		Further Deepen Reform of the Fiscal System at and Below the Provincial Level
		Improve the System of Transfer Payments and the Mechanism for Ensuring Grassroots Financial Support
	4.2 Improve the Budget Management System and the Government Budget Management System
		Continue to Deepen Reform of the Full Bore Budget Management
		Improve the Annual Budget Control Method and Establish a Cross-annual Budget Balance Mechanism
		Vigorously Promote Budget Openness and Establish a Transparent Budgeting System
		Clear Up and Standardize the Linkage Mechanism, and Optimize the Allocation Structure of Fiscal Funds
		Further Improve the Treasury Payment System and Treasury Cash Management System
		Strengthen Budget Implementation Management and Actively Promote Budget Performance Management
		Accelerate the Construction of an Information System for Fiscal Revenues and Expenditures
	4.3 Deepen Tax Reform and Accelerate the Establishment and Improvement of the Local Tax System
		The Basic Principles and Roadmap for Deepening Tax Reform
		Make the Tax System More Progressive and Give Play to the Role of Taxation in Adjusting Income Distribution
		Reduce Tax Distortions and Promote Steady Economic Growth
		Improve the Local Tax System and Enhance the Revenue Capacity of Local Governments
		Implement Tax Collection and Administration Reform and Improve the Efficiency of Tax Collection and Administration
		Supporting Reform Measures to Promote Tax Reform
	4.4 Further Deepen Reform of the Management of Government Expenditures
		Improve the Structure of Government Expenditures
		Optimize the Pattern of Government Expenditures and Improve the System of Spending Quotas and Standards
		Strengthen the Performance Evaluation of Fiscal Expenditure
		Improve the Government Procurement System and Actively Promote the Government to Purchase Public Services
	4.5 Improve the Government Debt Management System
		Establish and Improve the Local Debt Management System
		Improve the Operation of National Debt and the National Debt Balance Management System
5 Risk Prevention and Control and Supporting Linkage
	5.1 Evaluation of the Basic Situation of Financial Risks
		Local Government Debt has Increased Substantially, and the Overall Risks are Under Control
		Outstanding Problems Existing in Local Government Debt
		A Fundamental Approach to Local Government Debt
	5.2 The Framework and Key Points of the Financial Risk Prevention System
		Speed up the Improvement of the System and Eliminate the Mechanism of Local Governments’ Improper Borrowing
		Govern the Stock and Control the Increase, and Establish a Sunshine Local Debt Classification Management System
		Build a Standardized Sunshine Financing System for Local Governments as the Basic Point to Promote the System Construction
		Establish and Improve the Local Debt Risk Control Mechanism of “Central Regulation + Market Constraint”
	5.3 Coordinate and Promote Fiscal and Tax Reform and Other Reforms
		Price, Tax and Fiscal Reform Linkage
		Establish a Reasonable Sharing Mechanism for the Proceeds from the Transfer of Public Resources
		Establish a Complete Financial and Tax Information Data System with Big Data
		Actively Deepen Reform of the Administrative System
		Deepen the Reform of the Land System and Establish a Virtuous Circle of Land Finance
		Accelerate financial Reform and Coordinate with Fiscal and Taxation Reform
		Establish a Mechanism for Coordinating International Fiscal Policies
Postscript
References