Camera Adjustment of Central-Local Financial Relations: A Perspective of Balanced Finance

category:Finance
 Camera Adjustment of Central-Local Financial Relations: A Perspective of Balanced Finance


The Program mainly involves three aspects of policy measures, including the allocation of financial resources after the overall operation reform, tax reduction and fee reduction. Firstly, the proportion of five-five-year sharing of VAT should be kept stable. The purpose of this policy is to further stabilize and comprehensively promote the distribution pattern of five-five-year sharing between the central and local governments since the pilot project of increasing the number of battalions, from a transitional policy to an institutionalized arrangement. The policy calibre of VAT allocation in No. 26 will remain unchanged for 2-3 years. The Program has clearly defined the long-term stability of the policy calibre and given the local government a reassuring pill. It is also conducive to guiding local governments to develop advantageous industries according to local conditions, encouraging local governments to cultivate and expand tax sources in economic development, and enhancing the function of local financial hematopoiesis.

Before promoting the increase of business tax, business tax belongs to local tax while value-added tax belongs to shared tax (75% of the central government and 25% of the local government). The increase of business tax will cause a greater impact on local finance. Therefore, the State Council has set up a five-fifth transition plan for 2-3 years after launching the pilot project of business tax reform in an all-round way, but the consideration at that time was mainly from the perspective of relieving the pressure of local fiscal revenue. With the completion of the pilot project of comprehensive operation reform and expansion, the five-fifth division framework scheme has been finalized from the perspectives of policy continuity and stability, and on the basis of fully assessing the financial interests of the central and local governments.

The second is to adjust and improve the sharing mechanism of VAT withholding and refund. Under the premise of keeping the share proportion unchanged during the Fifth Five-Year Plan period, in order to alleviate the pressure of tax refund in some areas, the local share (50%) of value-added tax refund is adjusted from the total burden (50%) of the enterprises location to the first 15%. The remaining 35% is temporarily paid by the enterprises location, and then distributed equally according to the share proportion of value-added tax in the previous year, and the part that is more than the share is paid by the local government. The central government monthly transfers funds to provincial governments where enterprises are located in order to establish a long-term mechanism for VAT withholding and refund. There are two meanings here: one is to maintain the share proportion of the central and local Fifth Five-Year Plan. That is to say, the sharing mechanism of value-added tax is the same as that of the withholding and refund tax, which is a basic principle; the other is to advance 35% of the withholding and refund tax at the local level, and in the subsequent settlement process, the excess share should be carried out by the central finance, which is a technical treatment. At the same time, the Plan requires that the tax rebate sharing mechanism under provincial level be reasonably determined to effectively reduce the financial pressure at the grass-roots level. That is to say, the key point of this reform is not only the financial relationship between the central and local governments, but also the tax rebate allocation mechanism of local governments below the provincial level.

Thirdly, we should move back the levy link of consumption tax and lay down the place steadily. In accordance with the requirements of improving the reform of the local tax system and under the premise of controllable collection and management, the current items of consumption tax levied in the production (import) link are gradually moved to the wholesale or retail link to levy, expand the local income sources and guide the local authorities to improve the consumption environment. According to the current classification of tax categories, consumption tax has always been the central tax. Although there are some controversies in the industry about whether it can be used as a shared tax, they are basically based on academic discussions. The reform of the Consumption Tax Collection and Management in the Program mainly involves two aspects: one is the backward movement of the consumption tax collection link of some consumer goods items, that is, from the initial production (import) link to the final wholesale or retail link. This arrangement involves the adjustment of the tax paying place and the competent tax authorities, and also makes the distribution of the consumption tax sources more balanced. The Plan clearly starts with the reform of high-end watches, precious jewelry and jewelry and jade items with mature conditions, and then combines with the consumption tax legislation to carry out the pilot reform of other qualified items. Second, the base number of the stock of reform and adjustment should be determined by the local government, and the incremental part should belong to the local government in principle, so as to ensure the financial stability of the central government and the local government. This arrangement is also in line with Chinas reform experience of constant stock and incremental adjustment, which not only guarantees the overall stability of central financial resources, but also enhances the endogenous stability of local financial resources.

How to Give Full Play to Two Positivities

Mao Zedong published On the Ten Great Relations at the enlarged meeting of the Political Bureau on April 25, 1956. He expounded that we should give full play to the two initiatives of the central and local governments. He believed that two initiatives were better than one initiative. Since then, in the following fiscal and taxation system reform process in New China, two initiatives are important guiding principles to deal with the central and local financial relations. In addition, Article 3 of the Constitution of our country stipulates the principle of dividing the functions and powers of the central and local state organs, that is, to follow the principle of giving full play to the initiative and initiative of the local government under the unified leadership of the central government. In 1994, the State Councils Decision on Implementing the Tax-sharing Financial Management System put forward that correctly handle the distribution relationship between the central and local governments, mobilize two initiatives, and promote the rational growth of national fiscal revenue, while emphasizing that local interests should be taken into account, local enthusiasm for economic development, income increase and expenditure reduction should be mobilized, and the proportion of central fiscal revenue should be gradually increased and appropriately increased. The central financial resources should be strengthened to enhance the macro-control ability of the central government. The purpose of the reform of the tax distribution system in 1994 is to enrich the financial resources of the central government and strengthen its control. Otherwise, it will not be able to increase the central governments macro-control ability and give full play to its governance influence and enthusiasm. Based on this, under the principle of two initiatives, the central government obtains more increments from fiscal revenue according to the legitimacy of macro-control.

The Third Plenary Session of the Eighteenth Central Committee launched a prelude to the comprehensive deepening of reform with the overall goal of national governance capacity and modernization of governance system. The Decision adopted by the Plenary Session in the field of fiscal and taxation reform put forward improving legislation, clarifying power, reforming tax system, stabilizing tax burden, transparent budget, improving efficiency, establishing a modern financial system, giving full play to the initiative of the central and local governments. Establish a system that is compatible with the authority and responsibility for expenditure. This is another reference in the central document to the principle of two initiatives as one of the main purposes of establishing a modern financial system. In terms of the specific distinction between power and expenditure responsibility, the Decision also sums up the relevant issues and puts forward the idea of maintaining the overall stability of the existing financial structure of the central and local governments to ensure two initiatives. The Plan for Deepening the Reform of the State Tax and Local Tax Collection and Management System adopted by the Central Administration and the State Office in 2015 further emphasizes that we should continue to adhere to and implement two initiatives rather than one initiative at the level of tax collection and management. Two Positivities mainly includes two meanings: first, in the absence of a very clear basis for the division of powers between the central and local governments, from the perspective of the strategy of governing the country, to improve the administrative performance of the central and local governments; second, in these years of governance practice, the evaluation of the central and local relations and their intergovernmental financial relations is also constructed. On the basis of two initiatives.

If we use a principle that can be refined to summarize the way of big country governance, it is obviously appropriate to give full play to two initiatives. Two Positivities covers the three basic aspects of the central governments macro-control enthusiasm, the local governments public governance enthusiasm and the optimum linkage enthusiasm of the relationship between the central and local governments. It is a comprehensive reflection of the individual and interactive enthusiasm of the central government and the local governments roles, and presents a new thinking to solve the reform of the fiscal and taxation system in the new period, especially the division of powers and expenditure responsibilities. u3002 In the context of tax reduction and fee reduction, besides the large-scale adjustment of macro-tax and fee income, there are structural adjustment of various taxes and fee ratios. It also involves the systematic construction of central and local financial management system. Although logically speaking, the tax reduction and burden reduction policy of macro-policy will stimulate more innovation vitality and innovation momentum of market participants, the fiscal revenue of local government organizations will still face considerable challenges. The solution to the enthusiasm of local governments depends on two efforts: one is that after tax reduction and fee reduction, the market becomes more prosperous, which leads to the expansion of tax genes and thus the tax revenue can still maintain a small increase under the condition of tax rate reduction; the other is that due to policy lag, economic downturn and other reasons, the relevant effects can not be timely reflected in the case of tax revenue, the central government needs to be relatively local. The financial capacity of the Party is at its lowest level. Therefore, the Plan emphasizes that the implementation of larger-scale tax reduction and fee reduction is the key to cope with the current downward pressure of the economy, and the adjustment of the central and local income division reform is an important guarantee for the implementation of the tax reduction and fee reduction policy.

The Idea of Balanced Finance and the Construction of Local Tax System

The report of the Nineteenth National Congress of the Communist Party of China on deepening the reform of the fiscal and taxation system fully states: Accelerate the establishment of a modern financial system, and establish a clear power and responsibility, financial coordination, regional balance of central and local financial relations. Establish a comprehensive, standardized and transparent budget system with scientific standards and strong constraints, and implement performance management in an all-round way. Deepen the reform of tax system and improve the local tax system. Generally speaking, these three sentences convey four meanings of further deepening the reform of fiscal and taxation system: first, to accelerate the establishment of modern financial system, and the important content of modern financial system is to establish a scientific and standardized central and local financial relationship; second, the goal of the construction of central and local financial relationship is clear power and responsibility, financial coordination and balance; third, to promote performance management in depth. Fourthly, we should promote the reform of tax system focusing on the construction of local tax system. Different from the Decision of the Third Plenary Session of the Eighteenth Central Committee, the statement on deepening the reform of fiscal and taxation system in the report of the Nineteenth National Congress is that the central and local financial relations are put in a more important and primary position. It can be understood that only by establishing a clear power and responsibility, financial coordination, regional balance between the central and local financial relations, can a modern financial system suitable for the market economic system in the new era be truly established.

So, how to understand the intergovernmental financial relationship of clear power and responsibility, financial coordination, regional balance? It is necessary to have a clear understanding of the meaning and characteristics of this goal. Firstly, clarity of power and responsibility is the precondition, which is to form a division model of central leadership, reasonable authorization, standardization according to law and efficient operation of financial powers and expenditure responsibilities. Secondly, the concept of financial coordination is to promote the formation of a reasonable financial structure between the central and local governments to provide a strong guarantee for governments at all levels to fulfill their financial powers and expenditure responsibilities. Regional equilibrium is the pursuit of the goal, that is, we should focus on strengthening the ability of undertaking in areas with financial difficulties, and steadily improve the level of equalization of basic public services among regions. The unity of these three elements is the value pursuit, objective choice and the only way for the reform of central and local financial relations at present and in the future. Among them, the importance of the local tax system is self-evident. On the premise of maintaining the overall stability of the financial structure of the central and local governments, it is an important measure to promote tax reform under the background of tax reduction and fee reduction to scientifically determine the mode and proportion of sharing tax between the central and local governments and to increase local taxes appropriately. In the future, the central government will focus on promoting the formation of a central and local income division system with sharing tax as the main and exclusive tax as the supplement, reasonable sharing tax and scientific division of exclusive tax.

Finance is the foundation and important pillar of national governance. The financial governance of large developing countries needs to adapt to the requirements of different stages of development, fully consider the inertia of history and culture, the distribution of factor endowments, the characteristics of administrative system and the differences of regional development, and adopt fiscal and taxation systems and governance modes adapted to Chinas construction of a modern economic system according to local conditions. Undoubtedly, balanced finance is the value goal and the main axis of future fiscal governance in China. Whether we give full play to the two initiatives of the central and local governments or actively promote the equalization of basic public services in all regions, we need to focus on the principles of balance, fairness and marketability. Under the background of tax reduction and fee reduction, the Plan proposes that the allocation of central and local fiscal revenue, or the construction of local tax system, is in fact a profound reflection of the concept of balanced finance in financial governance. Combining with the specific content of the Plan, it is not difficult to conclude the infiltration and transmission of the balanced fiscal concept. First, we should maintain the overall financial structure and enlarge the cake on a large scale; second, we should establish a more balanced and reasonable sharing mechanism to divide the cake in structure; third, we should steadily promote and improve the reform of the local tax system and make sweet cake in quality. (Author Wang Huayu is deputy director of Finance and Taxation Law Research Center of Shanghai Jiaotong University.) Source of this article: Peng Mei News Responsible Editor: Yang Zeyu_NF6036

Finance is the foundation and important pillar of national governance. The financial governance of large developing countries needs to adapt to the requirements of different stages of development, fully consider the inertia of history and culture, the distribution of factor endowments, the characteristics of administrative system and the differences of regional development, and adopt fiscal and taxation systems and governance modes adapted to Chinas construction of a modern economic system according to local conditions. Undoubtedly, balanced finance is the value goal and the main axis of future fiscal governance in China. Whether we give full play to the two initiatives of the central and local governments or actively promote the equalization of basic public services in all regions, we need to focus on the principles of balance, fairness and marketability. Under the background of tax reduction and fee reduction, the Plan proposes that the allocation of central and local fiscal revenue, or the construction of local tax system, is in fact a profound reflection of the concept of balanced finance in financial governance. Combining with the specific content of the Plan, it is not difficult to conclude the infiltration and transmission of the balanced fiscal concept. First, we should maintain the overall financial structure and enlarge the cake on a large scale; second, we should establish a more balanced and reasonable sharing mechanism to divide the cake in structure; third, we should steadily promote and improve the reform of the local tax system and make sweet cake in quality.

(Author Wang Huayu is deputy director of Finance and Taxation Law Research Center of Shanghai Jiaotong University)