Taxation Reforms and Changes in Revenue Assignments in China

25 Pages Posted: 15 Feb 2006

See all articles by Ehtisham Ahmad

Ehtisham Ahmad

International Monetary Fund (IMF)

Raju Singh

International Monetary Fund (IMF)

Ben Lockwood

University of Warwick - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 2004

Abstract

The value-added tax (VAT) in China has the unusual feature that capital goods are included in the VAT base. In addition, most services are subject to the business tax, which is not creditable against VAT, but which accrues to local governments, and operates as a turnover tax. On grounds of economic efficiency, it would be desirable to eliminate these distortions so that domestic producers are not increasingly placed at a disadvantage as China dismantles tariff and nontariff barriers on competing goods. Reforming indirect taxation would however generate considerable revenue losses for local governments and, in the absence of any compensatory mechanisms, there would be significant impediments to the needed reforms. This paper focuses on the extent of revenue losses, their distribution across provinces, and possible options for compensation.

Keywords: Fiscal Policy, Indirect Taxation, Intergovernmental Fiscal Relations, China

JEL Classification: H20, H71, H77

Suggested Citation

Ahmad, Ehtisham and Singh, Raju and Lockwood, Ben, Taxation Reforms and Changes in Revenue Assignments in China (July 2004). IMF Working Paper No. 04/125, Available at SSRN: https://ssrn.com/abstract=878949

Ehtisham Ahmad (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Raju Singh

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Ben Lockwood

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 24 7652 8906 (Phone)
+44 24 7657 2548 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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