Taxation Reforms and Changes in Revenue Assignments in China

Author/Editor:

Raju J Singh ; Ben Lockwood ; Ehtisham Ahmad

Publication Date:

July 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2004/125

Subject:

English

Publication Date:

July 1, 2004

ISBN/ISSN:

9781451854855/1018-5941

Stock No:

WPIEA1252004

Pages:

25

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