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China to push forward fiscal reform at sub-provincial level

The General Office of the State Council issued a circular on promoting fiscal system reform at sub-provincial level on June 13.
Within the framework of tax sharing between central and local governments, the reform is aimed at straightening out fiscal powers and expenditure responsibilities at local levels and inter-governmental revenue division in order to form a standardized fiscal system below the provincial level.
This will also create system consistency and policy continuity and innovative management modes while giving full play to the role of the fiscal system in guiding and guaranteeing reform and development.
The division of fiscal power and expenditure responsibilities for sub-provincial governments must be clarified. According to the circular, basic public services offered by primary-level governments should be divided into city- and county-level fiscal power.
Tax revenue among governments at sub-provincial levels should be straightened out and revenues should be divided based on tax features such as strong mobility in tax base, uneven distribution among regions and large fluctuations in annual revenue. These will be included into the revenue of provincial-level governments or be shared by provincial-level governments in higher proportion, while the tax revenue with stable tax base and obvious geographical features will be defined as revenue at the city and county level or be shared at a higher proportion.
To standardize revenue sharing, tax sharing should be clarified among governments at sub-provincial levels and the sharing proportion of various types of tax should be defined appropriately.
Further improving transfer payment systems with clarified payment functions, optimized structure and scientific allocation was also suggested.
To establish and improve adjustment mechanism of fiscal systems for sub-provincial governments, efforts should be made to set up a dynamic adjustment mechanism on fiscal powers and expenditure responsibilities, push for adjustment on revenue division and intensify management on various types of transfer payment.

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