| Reformation on tax distribution system implemented in 1994 divided central and local financial incomes according to taxes, aiming to improve central government’s macro-control ability and assure its financial income. Thus, the distribution mechanism regarding to governance and financial resources between central and local governments is hereby established and carried out at present. However, the disadvantages of the mechanism have been gradually revealed due to its design deficiencies. Among those, the most prominent problem was the governance and financial resources between central and local authorities have been unreasonably distributed, together with the lack of a scientific design for local tax system, which have caused deficiencies to the local governments for appropriate main taxes and lower financial income scale, as well as the restrictions of public services execution. The pilot experiment for replacing business tax with value-added tax(VAT) implemented in 2012 started up a new round of tax reform in China, which replaced current local business tax as main taxes with value-added tax which the income is shared by both central government and local authorities. This is undoubtedly an increased misfortune for local finance where the income has always been lower than their expenditures. The Third Plenary Session of the 11 th Central Committee has put forward to maintain our current financial structure between central government and local authorities. Hence, the realization for a favorable development of local finance must have a clear perspicuity on the impact that the policy of replacing business tax with value-added tax brings to it. Based on this, the scope of governance between central government and local authorities could be better clarified and the local tax system be established with scientific approach. All these factors are of great significance to improve the tax system in our country.In this paper, the combination of theory and practice is adopted amid the process of research and writing, together with the equal qualitative analysis and quantitative analysis, so as to discuss the structure of the local finance under the background that the policy of replacing business tax with value-added tax is implemented. In qualitative analysis, the theory relating to governance and financial resources, financial system’s current situation and content of the policy of replacing business tax with value-added tax are being discussed and the restructuring of local financial resources is being proposed. In quantitative analysis, a comprehensive collection, calculation and comparison have been conducted for financial data in Sichuan Province from 2001 to the present. On this basis, with industry’s added value as the foundation and in the light of the proportion of intermediate input among Sichuan Input-output Table in 2007, VAT payable data calculation is carried out for construction industry, real-estate industry, financial industry and life service industry through the production approach formula, based on these data the financial status can be figured out after the policy of replacing business tax with value-added tax is fully implemented in Sichuan, as well as the analysis on the impact that the policy brings to Sichuan government revenue.In this paper, the basic information is presented initially, including the paper’s significance, literature overview, research framework, method, the paper’s creation and deficiency. Secondly, the relevant theory for local financial resources structure is discussed, and the theoretical analysis is conducted for the governance scope definition between central government and local authorities from the perspective of having public goods provided. According to the principle of the clear division of governance, a suitable mechanism for governance and financial resources shall be clarified. These provide a theoretical support for this paper’s analysis. Practically, the paper is emphasizing on the impact that the policy of replacing business tax with value-added tax brings to Sichuan government revenue. During the process of writing, time division is adopted to classify the local financial development after the founding of the PRC and have an overall understanding of our country’s financial development status, as well as the deep analysis on the existing problem of the financial tax decentralization system, so as to provide supports for the quantitative analysis in next chapter. Based on these, the financial data research for Sichuan Province shall be carried out. According to three different periods including the period before the policy of replacing business tax with value-added tax implemented in Sichuan, the period that the current reformation is executed as pilot experiment and the period after the reformation’s fully execution, the general status of Sichuan government revenue, tax revenue, non-tax revenue composition and financial revenue and expenditure status are discussed to conclude that the overall implementation to the policy of replacing business tax with value-added tax has put the tough government revenue in Sichuan to a further reduction. In accordance with this result, this paper has referenced other international experiences before the solution is put forward, so as to analyze and compare the governance and financial resources division and structure between Central government and local authorities in German, Italy and Russia. This will provide guidance and reference for local financial resources structure. Lastly, due to the above-mentioned theoretical analysis and data calculation, following suggestions are to be proposed for local financial resources structure in China: in the aspect of the matching mechanism for governance and financial resources, central government is expected to enhance and expand its governance and range of expenditure responsibility. In the aspect of the improvement for local tax system, the proper expansion of local tax restriction and the increase for the proportion of VAT sharing by local authorities shall be carried out, and local governments should scientifically establish its main tax Based on this, the feasibility discussion shall be executed at provincial first-level areas for collecting the consumption tax in retail sectors and the feasibility discussion for choosing house property tax as the main tax at city and county level areas. In addition, the proposal to optimize the transfer payment mechanism is also put forward. Through regulating the current transfer payment structure and properly expanding the general transfer payment proportion, together with the design for the horizontal transfer payment mode, an improved transfer payment structure shall be realized in our country. |
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