Ma Haitao: The key areas of the new round of fiscal and taxation system reform and their promotion directions|Cover topic

Text: Ma Haitao, President of the Central University of Finance and Economics

As the forerunner and guide of China's economic structural reform, the reform of the fiscal and taxation system has a heavy responsibility and an unshirkable responsibility. Based on the new situation and the new stage, it is timely to plan for a new round of fiscal and taxation system reform, and we should continue to promote the effective improvement of the quality and reasonable growth of the mainland's economy with financial strength, so as to provide a solid institutional guarantee for speeding up the construction of Chinese-style modernization.

In December 2023, the Central Economic Work Conference proposed: "It is necessary to plan a new round of fiscal and taxation system reform", and this year coincides with 30 years from the last epoch-making "tax sharing system" fiscal and taxation system reform. The reform of the "tax-sharing system" has reshaped the fiscal relationship between the central and local governments in the mainland, ensured the control of the central finance, and injected sufficient impetus into the local finances while comprehensively and effectively coordinating financial resources, which has laid a solid institutional foundation for the subsequent rapid economic growth and provided a solid guarantee for the improvement of the country's governance capacity.

A historical review of the reform of the fiscal and taxation system since the reform and opening up

Since the beginning of reform and opening up, the mainland has made brilliant achievements in socialist construction that have attracted worldwide attention. In this process, the reform of the fiscal and taxation system, as the vanguard of various reforms to promote the construction of socialism with Chinese characteristics, has transformed from a breakthrough in the reform of the economic system to the foundation and pillar of comprehensively deepening the reform, providing a strong impetus for economic and social transformation and the modernization of national governance.

Reform and opening up to the 18th National Congress of the Communist Party of China: The reform of the fiscal and taxation system serves the construction and improvement of the socialist market economy system with Chinese characteristics

In the early stage of reform and opening up, the reform of the economic system was guided by "giving priority to efficiency and taking into account fairness", and at this stage, attention was paid to building a fiscal and taxation system that was compatible with the socialist market economic system. In order to standardize intergovernmental financial relations, the mainland began to implement the reform of the "tax-sharing system" in 1994. The target of the reform of the "tax-sharing system" is the fiscal system, and the focus of the reform is on general budget revenues. The first is to maintain the basic stability of the division of powers and responsibilities for expenditure. The second is to follow the general practice of market economy to divide the central and local tax revenues. The third is to establish a tax return mechanism and introduce a transfer payment system. Since then, the intergovernmental financial system of grading and taxing has been gradually established and developed, fully mobilizing the enthusiasm of both the central and local governments and promoting the formation and improvement of the market economic system. Further, in order to build a fiscal and taxation framework that is compatible with the socialist market economic system, the 1998 National Fiscal Work Conference proposed for the first time the establishment of a public financial framework. In the course of vigorously supporting market-oriented reforms in key areas such as state-owned enterprises and finance, the government has significantly increased its investment in the development of social undertakings such as education, medical care, and social security, and has gradually changed its financial focus from a production and construction type to a public service type that meets the needs of public finance and improves people's livelihood.

Since the 18th National Congress of the Communist Party of China, the reform of the fiscal and taxation system has served the modernization of the national governance system

The Third Plenary Session of the 18th Central Committee of the Communist Party of China put forward a new thesis that "finance is the foundation and important pillar of national governance", elevating finance, which used to be one of the elements of the economic category and economic field, to the level of national governance. First, in terms of budget management reform, the formal implementation of the new "Budget Law" in 2015 clarified and emphasized the full-caliber budget management system in the form of law, and at the same time proposed a cross-year budget balance mechanism to promote the institutionalization of transfer payments. Second, in terms of tax system reform, the full implementation of the "business tax reform" in 2016 marked the completion of the major structural transformation of the turnover tax system.

In the same year, the third phase of the Golden Tax Project achieved full coverage, standardizing tax law enforcement and controlling tax risks. In 2018, the "merger of national and local taxes" started a new process of reform of the tax collection and management system, improved the efficiency of tax collection and management, strengthened the optimization and integration of information and resources, more effectively figured out the details of tax sources, and coordinated financial resources upward. At the same time, the mainland continued to promote large-scale tax cuts and fee reductions, with the mainland's macro tax burden falling from 18.7% in 2012 to 13.8% in 2022, and from 2013 to 2022, the cumulative tax and fee reductions and tax refunds and deferrals exceeded 13 trillion yuan, helping to deepen the supply-side structural reform. Third, in terms of the reform of the fiscal relationship between the central and local governments, since 2018, the mainland has successively introduced 10 reform plans in the fields of basic public services, science and technology, education, medical and health care, transportation, ecological environment, natural resources, public culture, emergency rescue and intellectual property rights, and initially established a dynamic adjustment mechanism for the division of fiscal powers.

The above-mentioned series of fiscal and taxation system reforms have laid the foundation and pillars for the modernization of the mainland's national governance system, and the country's governance capacity has been further improved.

A new orientation for the new round of fiscal and taxation system reform

The mainland is currently in a critical period of realizing the great rejuvenation of the Chinese nation, a new journey of building a modern socialist country in an all-round way has begun, and promoting Chinese-style modernization and high-quality development is becoming a new consensus and direction of action.

Based on the strategic thinking of "three new and one high".

Based on the new stage of development, implementing the new development concept, and accelerating the construction of a new development pattern are the theoretical connotations and practical requirements of the new journey of building a modern socialist country in an all-round way. The new round of fiscal and taxation system reform needs to take major national strategies and key tasks as the key areas of fiscal expenditure, help science and technology to become self-reliant and self-reliant, accelerate the development of a modern industrial system, create new advantages in the development of the digital economy, promote the modernization of agriculture and rural areas, and promote the green and low-carbon transformation of the economy and society. The government should support "promoting consumption, expanding investment, and stabilizing foreign trade", firmly adhere to the bottom line of safe development, and better coordinate domestic and international circulation.

Based on the requirements of Chinese-style modernization

The new round of reform of the fiscal and taxation system must be fundamentally followed by the intrinsic requirements of Chinese-style modernization. The modernization of the huge population requires the reform of the fiscal and taxation system to always focus on people's livelihood and well-being, optimize the structure of fiscal expenditure, focus on ensuring basic people's livelihood, and firmly consolidate the bottom line of people's livelihood. The modernization of common prosperity for all the people requires that the reform of the fiscal and taxation system pay more attention to the regulating role of income distribution, standardize the wealth accumulation mechanism, and optimize the transfer payment system. The modernization of material civilization and spiritual civilization requires the reform of the fiscal and taxation system, optimizing the allocation of educational resources, ensuring the supply of public cultural services, effectively safeguarding the people's cultural rights and interests, and enriching the people's spiritual and cultural life. The modernization of harmonious coexistence between man and nature requires focusing on the structural, root cause and trend problems of ecological and environmental protection, improving the construction of the green tax system, improving the transfer payment compensation mechanism in important ecological function areas, and strengthening the construction of the government's green procurement system. Modernization on the path of peaceful development requires practicing the global governance concept of "extensive consultation, joint contribution and shared benefits", actively participating in and guiding the re-construction of the international tax governance system, strategically and strategically undertaking the financial mission and responsibility of major countries, providing more international public goods to the world, and promoting the building of a community with a shared future for mankind.

Based on the complex new international and domestic situation

In today's chaotic world, the evolution of changes in a century is accelerating, economic globalization is encountering headwinds, trade protectionism and geopolitical games continue to intensify, the momentum of world economic growth is insufficient, the trend of domestic population aging, economic digitalization and low-carbon is strengthening, and the uncertainty of economic operation is getting higher and higher. In the new round of reform of the fiscal and taxation system, it is necessary to adhere to the policy orientation of "focusing on me," and while strengthening the cross-cyclical adjustment of the fiscal policy, it is also necessary to comprehensively consider the reality of the mainland's economic recovery of stability and balance, and appropriately strengthen the countercyclical adjustment role of the fiscal policy.

Based on the new changes in the financial situation

In recent years, the mainland's economic development has entered a new normal, fiscal revenue has entered a stage of medium and low-speed growth, the pressure on rigid expenditure has not decreased, the contradiction between fiscal revenue and expenditure has increased, the risk of local government debt has become prominent, and fiscal operation will remain in a state of "tight balance" for a period of time. Therefore, in the reform of the fiscal and taxation system, it is necessary to grasp the relationship between fiscal revenue and expenditure, and between the present and the future. On the one hand, we should cultivate and conserve high-quality tax sources, actively expand fiscal space, establish a long-term mechanism for preventing and resolving local debt risks, comprehensively promote the sustainable capacity building of local finance, and improve the comprehensive ability of the government to respond to various sudden risks. On the other hand, we will continue to optimize the structure of fiscal expenditure, give priority to the "three guarantees" expenditure at the grassroots level, increase support for key areas, reduce general expenditure, cancel unreasonable expenditure and non-performance expenditure, rationally coordinate financial resources, strengthen the performance management of fiscal fund expenditure, and improve the efficiency of the use of fiscal funds.

Based on the new transformation of the main contradictions in society

The main contradiction in mainland society at the present stage is the contradiction between the people's ever-growing needs for a better life and unbalanced and inadequate development; the task of reform in key areas is still arduous, there are shortcomings in ensuring people's livelihood, there are still weaknesses in social governance, and there is a large gap between urban and rural development and income distribution. The new round of fiscal and taxation system reform must focus on improving the effectiveness and fairness of fiscal expenditure, on the one hand, we must pay attention to the direct and indirect improvement of the people's sense of gain, happiness and security brought by expenditure; On the other hand, it is necessary to meet the people's growing needs for democracy, the rule of law, fairness, justice, security, the environment, etc.

The direction and path of the new round of fiscal and taxation system reform

The new round of reform of the fiscal and taxation system should adhere to the logical main line of "leading finance with government and supplementing government with finance" since the reform of the "tax sharing system", serve the great process of modernization of the national governance system and Chinese-style modernization, and take "a group of relationships, one key point, and three major areas" as the starting point, and advance in depth in the following five aspects.

Reasonably grasp the boundary between the government and the market and the intensity of its adjustment

Adhere to the fundamental guidance that the market plays a decisive role in the allocation of resources and give better play to the role of the government, and promote the dialectical unity of an effective market and a promising government.

First, it is necessary to reasonably define the size of the government and avoid the unreasonable expansion of government expenditure responsibilities. The first is to clarify the fields and directions of government expenditure, and try to establish a dynamic list of fiscal expenditure and government investment, so as to avoid the "offside", "absence" and "misalignment" of government functions. The second is to pay more attention to key areas of security, accelerate the construction of a modern economic system, and pay attention to "precise drip irrigation" of financial funds, so as to avoid the ineffective construction of repetitive projects and improve the efficiency of the use of financial funds. The third is to optimize the existing tax governance system, clean up and standardize preferential policies, establish tax environment assessment indicators, strengthen inter-regional tax coordination and collection and management cooperation, establish institutionalized regional tax coordination institutions, advocate spontaneous regional tax coordination and cooperation agreements, and guide the formation of a unified national market.

Second, government spending serves major national strategies, paying more attention to key areas such as science and technology, education, and people's livelihood. The first is to support the strategy of strengthening the country through science and technology. Improve the efficiency of the country's overall innovation system, increase long-term and stable financial support for scientific and technological innovation, fully support winning the battle of key core technologies, ensure the funding needs of major national science and technology projects, deepen the reform of the allocation and use mechanism of financial science and technology funds, and promote high-level scientific and technological self-reliance and self-reliance. The second is to support the strategy of building a strong country through education. Ensure the full allocation of education funds, improve the level of compulsory education funding guarantees, increase inclusive preschool education resources through multiple channels, promote the construction of a high-quality education system, and effectively improve the ability of high-quality development of education services. The third is to support social security such as medical care and pension. Continuously improve the "people's livelihood" content of fiscal expenditure, weave a dense social security safety net, continue to promote the integration of medical and elderly care, increase financial investment, mobilize the enthusiasm of cooperation between medical institutions and elderly care institutions, and promote the diversified development of elderly care services. Use financial funds to lead social capital, improve the degree of socialization of pension institutions, and vigorously develop the "silver economy".

Strengthen the diversified and overall planning of various types and levels of financial funds

Ensure that the use of financial funds improves quality and efficiency, and do a good job in ensuring the financial resources of major national strategic tasks.

First, strengthen the overall planning of various horizontal funds, that is, strengthen the overall planning of the "four budgets". We will further improve the government budget system, strengthen the effective connection of the "four budgets", promote unified compilation, approval and management, and strengthen policy integration and financial coordination.

Second, strengthen the overall planning of funds at all levels in the vertical direction, that is, the upward coordination of financial resources of vertical governments. With the "authorization relationship" as the core logic between the lower and lower levels of government on the mainland, the central government needs financial resources as the basic guarantee for entrusting and authorizing various matters to local governments, so it is necessary to ensure that financial resources are relatively coordinated with the governments at the next higher level, and give full play to the important overall planning ability of the central government in the national governance system.

Third, it is necessary to strengthen the overall planning of tax revenue and non-tax revenue. Coordinate the management of tax and non-tax revenues to enhance fiscal sustainability and improve the efficiency of economic operations. Strengthen the collection and management of non-tax revenues, prevent the extracorporeal circulation of financial funds, coordinate and integrate the profits of state-owned enterprises and the income from land transfers, make good use of all kinds of special bond funds and investment in the central budget, promote the construction of major projects, and guide the investment of the whole society.

Improve the modern budget system

Deepen the reform of the budget system, and drive the continuous improvement of government governance efficiency.

First, we need to further improve the budget management system and enhance the efficiency of funds and policies in key areas. The first is to further deepen budget performance management. Expand the scope of performance evaluation of key budget expenditures such as fiscal expenditures for science and technology and subsidies for the silver industry, promote the performance evaluation of the overall expenditure of fiscal funds and project promotion departments and units, disclose the results of the use of fiscal funds to the public, and urge all stakeholders to take the initiative to carry out benign supervision. The second is to implement the whole life cycle management of budget projects. Fully implement the "project-based" management of budget expenditure, and sort projects based on zero-based, rolling, and optimization-oriented, so as to realize that various expenditures can be increased or decreased, and can be advanced or retreated. The third is to improve the basic expenditure standards. Improve systems and standards for ensuring basic public services. Combine green fiscal policies, green taxation and green finance policies to effectively exert policy synergies. Fourth, comprehensively promote the integration of budget management. Actively promote the communication and sharing of budget information between the central and local governments, and dynamically reflect the budgets at all levels and their corresponding implementation. Strengthen the disclosure of budget and final account information, expand the scope of disclosure, refine the content of disclosure, improve the method of disclosure, enhance the integrity, standardization and timeliness of disclosure, and ensure democratic decision-making and democratic supervision of all expenditures.

Second, improve the government debt management system, guard against systemic financial risks, and improve the government debt management system and mechanism. The first is to try to build a budget for government debt. Realize the monitoring of the whole process of "borrowing, using, and repaying" government debt, clarify the principal and interest of annual debt, enhance the transparency of government debt, and strengthen the supervision of government debt management. The second is to build a lifelong accountability system for government debts. Clarify the relevant responsible entities and their related responsibilities for government debt, disclose the information of the person responsible for the issuance of government debt, and ensure lifelong accountability and back-checking responsibility for leading cadres who continue to borrow in violation of laws and regulations.

Optimize the tax structure

It is necessary to maintain the stability of the macroeconomic tax burden and the tax system, and ensure the necessary fiscal absorption capacity and the government's ability to regulate and control it. First, improve the value-added tax system and strive to promote high-quality development. Optimize the VAT distribution mechanism, and fully consider the contribution of production and consumption. Smooth the deduction chain, consider including loan services, catering services, and residents' daily services that have not yet been included in the deduction chain into the scope of VAT deduction, and try to adopt a zero-rated rather than direct tax exemption method. Second, improve the consumption tax system, strengthen the role of regulation and guidance, steadily expand the scope of collection, include more high-energy-consuming and high-polluting products in the scope of consumption tax, and increase the setting of tax items for luxury consumption; Move the collection link in batches, explore moving the collection link of consumption tax from the production link to the consumption link, and assign it to the place where the consumption behavior occurs in part or in full. Third, serve the national strategies such as the construction of a modern industrial system. Reduce the effective tax rate of modern industries, consider the relevant tax rates of upstream and downstream industries, form a linkage adjustment mechanism for modern industrial tax rates, increase tax reductions for modern industries in terms of financing methods, human capital, innovation transformation, etc., and give full play to the effectiveness of tax reductions in promoting innovation. Fourth, establish a digital tax system. Innovate the tax system based on the characteristics of data elements, incorporate data elements into the current tax system as tax objects, improve the factor allocation mechanism, establish an objectification mechanism for data elements, clarify the legal form and rights structure of tax objects, and reasonably adjust the selection of tax components, fully incorporate user value into the distribution mechanism of economic value and tax burden, and achieve the tax goal of fairness and efficiency.

Deepen the reform of the financial system

We should further straighten out the financial relationship between the central and local governments and give better play to the two initiatives.

First, we need to promote the division of powers and expenditure responsibilities between governments. As far as possible, the division of fiscal powers should be clearly defined, and the existing pattern of responsibility for expenditures should not be interfered with, and the division should be promoted in accordance with the principles and standards such as the scope of benefits, the complexity of information, and administrative costs, and the joint fiscal powers of the central and local governments should be regulated and reduced as much as possible. Actively build a "flexible" adjustment mechanism for expenditure responsibilities, adapt measures to the time and local conditions, and optimize and adjust the financial situation, so that all levels of finance have the ability to assume due expenditure responsibilities as much as possible.

Second, we need to optimize the division of intergovernmental revenue to ensure that the proportion of central fiscal revenue is within a reasonable range. In the past 15 years, the proportion of central fiscal revenue has continued to decrease, from 52.4% in 2009 to 45.6% in 2022. At the same time, we will improve the local taxation system, focus on cultivating local tax sources, and rationally set up local tax rights.

Third, improve the fiscal transfer payment system. Standardize the general transfer payment system, establish a mechanism for the steady growth of general transfer payments, and promote the equalization of basic public services between regions. Strengthen the management of special transfer payments, and clean up and integrate special transfer payments. Improve the transfer payment supervision system, improve the performance evaluation system for special transfer payments, and ensure that the use of special funds fully reflects the national strategic needs.

Fourth, we should speed up the reform of the financial system at the provincial and sub-provincial levels. First, it is necessary to establish a scientific and rational mechanism for dividing revenue below the provincial level, standardize the tax sharing ratio of governments at all levels below the provincial level, and give priority to determining the revenue sharing ratio of provincial governments so as to consolidate their position as the main body of regulation and control. The second is to further improve the definition of the power and expenditure responsibility of local governments below the provincial level, reduce the mismatch of authority, expenditure responsibility and financial resources, emphasize the overall management of the province by the provincial government, and implement the provision of public services by the grassroots government. The third is to standardize the financial management work below the provincial level, continue to promote the normalized direct fund mechanism, and strive to ensure the level of financial resources at the grassroots level.

This article is edited by Zhou Mingyi

Editor-in-charge丨Ding Kaiyan, Lan Yinfan preliminary trial丨Xu Lanying

Final Review丨Zhang Wei