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Taxation Reforms and Changes in Revenue Assignments in China

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  • Raju Jan Singh
  • Ben Lockwood
  • Ehtisham Ahmad

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/125.

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Length: 25
Date of creation: 01 Jul 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/125

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Related research

Keywords: Indirect taxation; Intergovernmental fiscal relations; Value added tax; Tax reforms; vat; vat revenue; consumption tax; tax revenues; vat rate; tax administration; vat system; telecommunications; telecommunications services; tax reform; television; tax collection; consumption taxes; tax competition; local taxation; property taxes; excise tax; recording; personal income tax; indirect taxes; effective tax rates; revenue collection;

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Cited by:
  1. Richard Bird & Christine C.P.Wong, 2005. "China's Fiscal System: A Work in Progress," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0520, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Era Dabla-Norris, 2005. "Issues in Intergovernmental Fiscal Relations in China," IMF Working Papers, International Monetary Fund 05/30, International Monetary Fund.
  3. Fraschini, Angela, 2006. "Fiscal federalism in big developing countries: China and India," POLIS Working Papers, Institute of Public Policy and Public Choice - POLIS 60, Institute of Public Policy and Public Choice - POLIS.
  4. Hashimzade, Nigar & Huang, Zhanyi & Myles, Gareth D., 2010. "Tax fraud by firms and optimal auditing," International Review of Law and Economics, Elsevier, Elsevier, vol. 30(1), pages 10-17, March.
  5. Ahmad, Ehtisham, 2011. "Should China revisit the 1994 fiscal reforms?," Discussion Papers, University of Bonn, Center for Development Research (ZEF) 115922, University of Bonn, Center for Development Research (ZEF).

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