After the Third Plenary Session of the Communist Party of China (CPC), the official authorities have successively put forward some financial and tax measures. During today’s press conference by the State Council Information Office, it was confirmed that in line with earlier reports by mainland Chinese media, consumption tax will gradually be devolved to the local level, and localities will integrate and increase local surcharges. The authorities also confirmed that the management authority over non-tax revenue primarily collected by local governments will be appropriately decentralized, including highway tolls. Mainland Chinese netizens are concerned about the government’s large-scale tax collection and delegation of toll collection to local authorities, denouncing it as a “money grab.”
On July 31, the State Council Information Office of the CPC held a press conference. Wang Dongwei, Deputy Minister of Finance of the CPC, announced three major actions:
Firstly, the entire consumption tax, which originally belonged to the central government, will be gradually shifted to and steadily devolved to the local authorities. Secondly, there are plans to merge urban maintenance and construction taxes, education fees surcharges, and local education surcharges into local surcharges, authorizing local governments to determine specific applicable tax rates within a certain range. Volatile organic compounds will also be included in the scope of environmental protection tax collection.
Wang Dongwei also mentioned that once the elements of the local tax system are determined and implemented, local authorities will be granted greater autonomy.
Thirdly, he specifically mentioned that non-tax revenue mainly belongs to local governments, and consideration would be given to appropriately decentralizing some of the management authority over non-tax revenue, allowing local governments to manage them differentially based on actual circumstances. Regarding toll roads, policies will be optimized based on the principle of “beneficiary pays.” The authorities did not further elaborate on how differential management and optimization would be implemented.
The three-year-long policy of zeroing out controls to rein in debt has exacerbated the financial difficulties faced by local CPC authorities, particularly as the once lucrative land finances are no longer sustainable, plunging many areas into debt traps.
Before the Third Plenary Session of the CPC, it was reported in early July that the authorities planned to expand high-end consumption taxation and gradually devolve consumption tax collection to local authorities. Rumors of a nearly trillion-yuan consumption tax reform for luxury goods and high-end services have emerged as potential pilot programs.
However, despite the end of the “zero out” policy, the Chinese economy continues to stagnate, with insufficient domestic demand. Topics like “downgrading of consumption,” “middle-class returning to poverty,” “youth unemployment,” “deflation,” and “sharp wage cuts” frequently trend on the internet. According to data from the CPC’s Ministry of Finance, individual income tax revenues for the period from January to June this year amounted to 735.8 billion yuan, a 5.7% decrease compared to the previous year.
On July 4th this year, Chinese issues expert Wang He told the Epoch Times that the current financial difficulties faced by local authorities will not be alleviated even if the central government allocates half of the consumption tax revenue to them, as it would barely make a dent in the high levels of debt accumulated locally.
Chinese-American scholar Li Hengqing believes that as people are already financially strained, increasing consumption tax will only discourage spending. “Harsh policies are more intimidating than a tiger, and introducing a consumption tax is definitely not a good idea at this time.”
Post the Third Plenary Session, mainland Chinese media hinted that the CPC Central Committee is considering consolidating a new local tax category-dubbed local surcharges, which theoretically could generate revenue close to a trillion yuan. However, several overseas experts interviewed by the Epoch Times expressed concerns that should the CPC levy local surcharges, it would be akin to “killing the goose that lays the golden egg” and taking desperate measures.
Tian Xie, a professor at the Darla Moore School of Business, University of South Carolina, told the Epoch Times that “local governments have been given a ‘magic sword’ and will likely significantly increase taxes, burdening the ordinary people, much akin to killing the goose that lays the golden eggs. It may alleviate the pressure of government deficits but will add to the burden of the people.”
The officials today mentioned they intend to “appropriately decentralize some of the management authority over non-tax revenue, allowing local governments to manage them differentially based on actual circumstances,” with explicit reference to highway tolls being based on the “beneficiary pays” principle, drawing public attention.
According to official data, non-tax revenue refers to government funds received by various levels of government, agencies, institutions, social groups combining administrative functions, and institutions, excluding tax revenue. Non-tax revenue includes government fund revenue, special revenue, administrative and operational fees revenue, confiscated income, state-owned capital operation income, state-owned resource (assets) paid use income, donation income, government housing fund income and other income.
The category of “confiscated income” has long been criticized. In recent years, exorbitant fines have been issued in many areas. There have been cases where elderly individuals received fines totaling 100,000 yuan from local market regulatory authorities for selling non-compliant celery, despite earning a profit of only 14 yuan.
According to data from the CPC’s Ministry of Finance, tax revenue for the first half of this year amounted to 9.408 trillion yuan, a decrease of 5.6% compared to the previous year. However, non-tax revenue reached 2.1833 trillion yuan, an increase of 11.7% compared to the same period last year. The continuous growth of non-tax revenue this year indicates that the CPC is intensifying its efforts to extract funds using its public authority.
Some mainland Chinese netizens express concerns, stating, “The significant and continuous increase of non-tax revenue is worrisome.” Others suggest that detailing the relevant specifics of non-tax revenue could alleviate concerns, while some question whether fines are included in non-tax revenue with comments like, “Money grab,” and “Lowering fees by half would be better; the burden on the common people is heavy.”
There are netizens critical of the CPC’s decision to allow local authorities to collect local surcharges, saying, “Originally there were national and local taxes, which were later merged into a unified value-added tax. Now, increasing local taxes separately, does this mean the value-added tax will be reduced, or is it a case of adding taxes on top of taxes?”
Some netizens propose that the Ministry of Finance issue bonds and directly distribute funds to all residents to stimulate consumption, injecting fundamental currency into society, reducing the debt burden on residents and subsequently lowering the debt burden on the private sector and local governments. They stress the urgency of improving various statistics promptly, citing agricultural analogies about the importance of addressing the dire situation decisively.
However, there are also netizens who lament, “Even from the allocation system in our unit, it is evident that they only care about their own interests.” Asked the question, “Is there still hope?”