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Taxation Reforms and Changes in Revenue Assignments in China

Author

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  • Raju J 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.

Suggested Citation

  • Raju J Singh & Ben Lockwood & Ehtisham Ahmad, 2004. "Taxation Reforms and Changes in Revenue Assignments in China," IMF Working Papers 04/125, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:04/125
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    Cited by:

    1. Era Dabla-Norris, 2005. "Issues in Intergovernmental Fiscal Relations in China," IMF Working Papers 05/30, International Monetary Fund.
    2. Hashimzade, Nigar & Huang, Zhanyi & Myles, Gareth D., 2010. "Tax fraud by firms and optimal auditing," International Review of Law and Economics, Elsevier, vol. 30(1), pages 10-17, March.
    3. Ahmad, Ehtisham, 2011. "Should China revisit the 1994 fiscal reforms?," Discussion Papers 115922, University of Bonn, Center for Development Research (ZEF).
    4. Ahmad, Ehtisham, 2011. "Should China revisit the 1994 fiscal reforms?," LSE Research Online Documents on Economics 57969, London School of Economics and Political Science, LSE Library.
    5. Richard Bird & Christine C.P.Wong, 2005. "China's Fiscal System: A Work in Progress (2005)," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0520, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    6. Fraschini, Angela, 2006. "Fiscal federalism in big developing countries: China and India," POLIS Working Papers 60, Institute of Public Policy and Public Choice - POLIS.
    7. Christine C.P. Wong & Richard M. Bird, 2005. "China?s Fiscal System: A Work in Progress," International Tax Program Papers 0515, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.

    More about this item

    Keywords

    China; Fiscal policy; Intergovernmental fiscal relations; Indirect taxation; vat; vat revenue; consumption tax; tax revenues; Taxation; Subsidies; and Revenue: General; State and Local Taxation; Subsidies; and Revenue;

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