Research On The Division Of Tax Revenues Between Central And Local Governments

The 17 th National Congress of the Communist Party of China(CPC)put forward to “improve social construction and focus on the livelihood”.In the report of The 18 th National Congress of the Communist Party of China(CPC),it was pointed out that “Social harmony is the essential attribute of socialism with Chinese characteristics.The protection and improvement of the livelihood should be on the priority position”.In recent years,people’s livelihood has become a hot question in our society.The reform in most areas is developed around this main line.As an important component of economic reform,the reform of fiscal and tax system is also reflected the improvement of people’s livelihood.The stable livelihood and harmonious society can promote the economic development and economic development can promote the development of tax fund.A wide range of tax sources provide strong financial support on livelihood improvement.Economic development,tax growth and livelihood improvement complement each other.Furthermore,the tax sharing reform in 1994 has made remarkable achievements in the past two decades.The financial ability and macro-control ability of the central government were significantly enhanced through the tax reform.With the development of socialist market economy in our country,tax sharing report also brought forward a lot of problems.The administrative power and the duty of expenditures between central and local government are still not clear.The administrative power and financial power do not match.The local tax system and relevant conveyance system are not perfect.Reference to the international experiences and our national conditions,the tax reform should continue to improve the “tax sharing system” and fully mobilize the initiatives of all level of government,straighten the distribution relationship.This article addresses six issues and problems related to the tax revenue distribution between the central and local government.(1)Tax revenue distribution between the central and local government is an institutional issue to some degree.How to define the borderline of government and market? How to define the borderline of the financial revenue and expenditure at all levels of government? Only when the administrative power and expenditures of the central and local government are defined clearly,can the tax revenue distribution between the central and local government be classified reasonably.(2)The problem in the allocation of tax power between central and local government.The advanced experience in developed countries can be used for reference but cannot be copied totally.The pattern of tax power “moderate decentralization” to local government is a preferred path of tax reform.(3)The problem in the tax revenue distribution between the central and local government.Based on the clear definition of administrative power and expenditure duty between the central and local government,it is further studied how to divide the tax category and distribute the tax revenue between the central and local government rationally.(4)The problem of local tax system construction.With the overall implementation of “replace business tax with value-added tax(VAT)” in our country,the main body of local tax was lost.This article has presented a concrete plan and specific path for the local tax system reconstruction.(5)The problem of conveyance system construction.To promote the regional harmonious development and balance the efficiency and equity,the conveyance system construction also should be considered when distributing tax revenue between the central and local government.This article has presented to set up the vertical – oriented transfer payment system,supplemented by horizontal transfer payment.(6)The problem whether to continue the tax sharing system reform.This article has pointed out the tax sharing system has made remarkable achievement over the past twenty years and it should be continued and improved to deepen the fiscal and tax reform in our country.This article draws the following main conclusions and perspectives:(1)The reasonably tax revenue distribution between the central and local government is grounded on the clear definition of administrative power and expenditure duty at all levels of government.(2)The tax power between the central and local government should be clarified after the responsibilities is clear.There are several principles should be followed to divide tax power as followings: equity and efficiency principle;giving consideration to both the central and local government;matching principle of administrative power and financial power and financial resources;tax principle of legality.It is presented in this article to establish the pattern of combination of “tax power centralization” in central government and “tax power moderate decentralization” to local government.(3)After the power and responsibility are well defined,the next step is to reconsider the tax category division between the central and local government,and rebuild the local tax system.(4)Improve the conveyance system related to tax distribution and balance the fiscal capacity of each province.The transfer payment system should be further perfected,the management of non-tax revenue should be strengthened and bond-issuing of local government should be regulated.The innovation of the article are as followings:(1)Start with people’s livelihood and government efficiency,a combination research methods are used in this article to study the tax revenue distribution between the central and local government,such as the theory of public goods,the theory of fiscal decentralization and the theory of optimal taxation.The history is combed through our articles.The main issues and problems are identified and the reasons are deeply analyzed.The solution on tax revenue distribution is further explored.(2)The clear administration power and expenditure duty are used as the logic start of the study on tax revenue distribution between the central and local government.The reasonable proportion of government expenditures at each level are reassessed by combing through the administration power and expenditure duty.The path of tax revenue distribution is further explored.Based on above logical way,the short-term solution,mid-term solution and long-term solution are presented respectively.(3)Adhere to further improve tax sharing system in the coming reformation.Given the consideration of our national condition and reference to advanced international experience,the pattern of combination of “tax power centralization” in central government and “tax power moderate decentralization” to local government is brought forward.The National Congress and the Standing Committee of the National Congress can confer certain tax legislative power to Provincial Congress and Standing Committee of the Provincial Congress.(4)Different plans on tax category division are compared by combing historical context and statistic data,which provide sufficient grounds to support the short-term solution,mid-term solution and long-term solution presented.The clear administration power and expenditure duty are used as the logic start of the study on tax revenue distribution between the central and local government.The tax revenue distribution system between the central and local government is studied based on the clear administration power and tax power.According to this logical line,the article is divided into six chapters.Chapter 1 is introduction.The introduction mainly introduces the research background and significance,concept definition,literature review,research thought and method,research emphasis and difficulties,and research innovation points.Chapter 2 is theoretical analysis about the tax revenue distribution system.This chapter is divided into three sections.The first section describes the theory of fiscal function and the theory of fiscal decentralization.The theory of fiscal decentralization demonstrates the necessity and the rationality of the local government.As the central government cannot provide public service according to local preferences and resource setting,the society’s welfare cannot fully maximized,which is the existence basis of local government.The theory of fiscal function demonstrates the necessity of government imposing taxes from the perspective of supplying public goods and service.Therefore,the division of administration power,financial power and tax power are raised based on these two theories.The second section leads to the study of optimization of the tax system structure from the angle of fairness and efficiency.The third section summarizes the principles of tax revenue distribution.When studying the tax revenue distribution system,the principles should be complied and the national conditions should be considered as well.Chapter 3 is the history combing on tax revenue distribution system between central and local government from the founding of New China.This chapter reviews the institutional change of distribution of tax revenue in China.It also summarizes the issues and problems in each stage and gives the objective evaluation on the advantages and disadvantages.Chapter 4 analyzes the problems of tax revenue distribution system in China between in the current situation.The article summarizes the main problems are as followings: Firstly,the administration power and expenditure duty between the central and local government are not clear.Secondly,the local government has not enough tax power to promote its initiatives and support its own duties.Thirdly,the tax category allocation and tax revenue distribution system are mismatched with administration power and local government expenditure duty.Fourth,the local tax system needs to be rebuilt.Fifth,the supporting system such as transfer payment system and non-tax revenue management,and the tax collection and administration system need to be further improved.The chapter 5 is the international experience and comparison.For solving the problems issued in chapter 4,this chapter intends to draw lessons from the developed countries to find out the countermeasures.This chapter makes comparison of the tax revenue distribution system in America,Germany,Japan and France respectively.The experience and inspiration in these countries are summarized as:(1)clear division of administration power and expenditure duty;(2)the pattern of “tax power centralization” in central government and “tax power moderate decentralization” to local government;(3)Perfect local tax system;(4)Perfect supporting system such as transfer payment system.Chapter 6 is the solutions and countermeasures on the tax revenue distribution system between the central and local government.Based on the previous analysis,this chapter proposes detailed solution and countermeasures:(1)Guideline and detailed plan on administration power division.The administration power division should follow the “five principles” addressed by government reform suggestions.Based on the principles,the expenditure duty between the central and local government should be specified,such as national defense,armed police,border defense,food security,elementary education and basic social security should be moved up to the central government.(2)Tax power allocation pattern.Given the consideration of our national condition and reference to advanced international experience,the pattern of combination of “tax power centralization” in central government and “tax power moderate decentralization” to local government is brought forward.The National Congress and the Standing Committee of the National Congress can confer certain tax legislative power to Provincial Congress and Standing Committee of the Provincial Congress.(3)Rebuild local tax system.The structure of tax system should be adjusted based on fairness and efficiency and the higher direct tax can be imposed.The value added tax is maintained the division principle on a 50/50 basis between the central government and local government,adjust the sharing proportion of income tax and turn the consumption tax into shared tax.As the main local tax category was lacked after the “business tax replacement with value-added tax”,the local tax system should be rebuilt by the reform on the existing tax and the open of new tax category.The gradual reform on the local tax system is preferred.Based on the thought above,the short-term solution,mid-term solution and long-term solution are presented respectively.(4)Improve the transfer payment system.This section puts forward to set up the vertical – oriented transfer payment system,supplemented by horizontal transfer payment to reach the goal of regional public service equalization.(5)Enhance the tax collection and administration level of modernization.The state and local tax administrative should collaborate and strengthen cooperation by using modern information technology to promote tax revenue collection efficiency.