Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform

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V. Deepening the Reform of the Fiscal and Taxation Systems

Finance is the foundation and an important pillar of state governance. Good fiscal and taxation systems are the institutional guarantee for optimizing resources allocation, maintaining market unity, promoting social equity, and realizing enduring peace and stability. We must improve legislation, clarify powers and responsibilities, reform the taxation system, stabilize tax burdens, have transparent budgets, increase efficiency, and establish a modern fiscal system to mobilize the initiative of both the central and local governments.

17. Improving the budget management system. We will adopt a completely standardized, open and transparent budget system. The focus of budget review will be extended from fiscal balance and deficit scale to expenditure budget and fiscal policies. We will clear up major expenditures that are linked to increases in financial revenues or GDP, and normally we will not link them up. We will establish a cross-year budget balance mechanism, a comprehensive government financial reporting system on accrual basis, and a standardized and reasonable debt management and risk early warning mechanism for both central and local governments. We will improve the general transfer payments growth mechanism, and mainly increase the transfer payments to old revolutionary base areas, regions inhabited by ethnic minorities in compact communities, border areas and poverty-stricken areas. Local fiscal gaps caused by the central authority's policy of increasing spending will be filled by general transfer payments in principle. We will tidy up, integrate and regulate special transfer payments projects, gradually cancel special matching funds and matching funds from local government in competitive areas. We will rigorously control special transfer payments for guiding, relief and emergency purposes, and screen the remaining special transfer payments and include them in the category of general transfer payments if they concern local affairs.

18. Improving the taxation system. We will deepen the reform of the taxation system, improve the local tax system, and gradually increase the proportion of direct tax. We will promote the reform of value-added tax, and simplify tax rate appropriately. We will adjust the collection scope, procedures and rates of consumption tax, and impose this tax on products that consume too much energy and cause serious pollution as well as some high-end consumer goods. We will establish an individual income tax system in which taxable income is defined in both comprehensive and categorized ways, accelerate real estate tax legislation and push the related reform forward in a timely manner. We will accelerate resource tax reform, and change the current environmental protection fee into an environment tax. In line with the principles of unifying taxation, promoting equality in tax burdens and fair competition, we will strengthen management of preferential tax policies, especially regional preferential tax policies. All preferential tax policies will be made clear in taxation laws and regulations and we will sort out existing preferential policies in this regard. We will improve the collection and management system of state and local taxes.

19. Establishing a system whereby authority of office matches responsibility of expenditure. We will appropriately increase the authority of office and responsibility of expenditure of the central government, including those concerning national defense, foreign affairs, national security, and unified national market rules and management. The authority of office over some social security programs, the construction and maintenance of major trans-regional projects will be shared by the central and local governments, and gradually clarify authority of office in this regard. Regional public services are the responsibilities of local governments. The central and local governments will shoulder their respective expenditure responsibilities according to the division of the authority of office. The central government can delegate some expenditure responsibilities to local governments through transfer payments. In terms of trans-regional public services with great impacts on other regions, the central government will share some of the expenditure responsibilities of local governments through transfer payments. We will maintain the overall stability of the current financial pattern of the central and local governments, and further rationalize the division of revenues between them through tax reform and taking into consideration the tax categories.

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