With local governments in China struggling to replenish their treasuries while facing growing public service obligations, Beijing is setting its sights on securing more tax revenue as a major reform goal for 2026 and the four years beyond.
Compared with the previous five-year plan period’s emphasis on “tax and fee cuts”, the language in the draft of the full 15th five-year plan – released on Thursday – emphasised “maintaining a reasonable macro tax burden”.
The document also pledged to “appropriately strengthen central government authority and increase the proportion of central fiscal expenditures, while reducing central fiscal responsibilities delegated to local governments for implementation”.
Revamping China’s tax system has become a delicate balancing act for policymakers, who face the difficulty of raising sufficient revenue without imposing an excessive burden on businesses – a challenge made all the greater by an economic slowdown, a prolonged property downturn and persistent deflationary pressures.
Authorities have pinned hopes on tax reform to help address major imbalances in the world’s second-largest economy, including industrial overcapacity, weak consumption and a persistent wealth gap.
The government work report, delivered by Premier Li Qiang at the opening ceremony of the National People’s Congress on Thursday, listed “improving the local tax system” and “expanding local tax sources” as policy goals this year.
The 2026 budget report, published by the Ministry of Finance on Thursday, also pledged to strengthen the overall planning of funds to better meet local needs.
“[It is necessary to] accelerate the reform of the fiscal system below the provincial level to enhance the alignment between the financial resources of cities and counties and their respective powers and responsibilities,” it stated.
China’s tax revenue remains low by international standards. In 2024, it stood at just 13 per cent of gross domestic product, far below the nearly 34 per cent average for countries in the Organisation for Economic Cooperation and Development in 2023.
Authorities recently took a series of measures to boost revenue. In late January, the Ministry of Finance and the State Taxation Administration released a slew of detailed provisions for a new value-added tax law, adjusting preferential rates for several sectors, including telecommunications services.
In the same month, Beijing announced that it would cancel value-added tax rebates for solar panel exports and lower rebates for batteries from 9 per cent to 6 per cent, effective from April 1. The battery rebates will be cancelled entirely on January 1, 2027.
Meanwhile, the country has ramped up scrutiny of high-wage earners and individuals’ overseas income to prevent tax evasion.
The draft for the new five-year plan also included a pledge of “exploring and refining the tax adjustment mechanism for capital gains, and strengthening tax regulation on high-income individuals”. Tapping new revenue sources from emerging sectors was also on the agenda.
As the real estate sector remains mired in a deep downturn, the new five-year plan did not mention legislative plans for a property tax, which had been referenced many times in the previous one. -- SOUTH CHINA MORNING POST
