Taxation has emerged as a buzzword across China in recent months, with an overhaul of tax policy sitting firmly atop Beijing’s fiscal agenda. Regulators have deployed a broad suite of stricter tax enforcement measures – new rules governing overseas trusts have been paired with stepped-up tax collection on gains derived from cross-border equity investment and insurance products.
These shifts in tax enforcement stem from multiple factors, and they mirror a notable shift in the policy mindset of the central government. Here’s what to know about the taxation landscape in China.
The establishment of China’s tax system
China’s unified national tax system took shape in the early 1950s, putting an end to what was then a patchwork of regional tax regimes.
After that, structural flaws embedded within the fiscal framework gradually tipped the balance in favour of provincial authorities – the bulk of tax revenue was accrued by local governments, which left the central government cash-strapped and its budget constrained.
In 1994, against this backdrop, China rolled out its most far-reaching and comprehensive tax overhaul to date. The reform defined categories for both central and local taxes and set up a standardised central-to-local tax rebate mechanism.
Nearly two decades later, in 2012, China rolled out another landmark fiscal transformation: the full replacement of business tax with value-added tax (VAT). Designed to eliminate double taxation and build a more equitable tax environment, the reform eased companies’ tax burdens and expanded their profit margins.
Tax relief was the prevailing policy theme during that period. In 2018, China’s Individual Income Tax Law underwent its seventh major amendment. The revision introduced refund provisions for the first time and lowered tax liabilities for low- and middle-income residents.
A policy shift: from tax relief to fiscal discipline
Policymakers’ fiscal stance appears to have undergone a notable shift in the past two years. Tougher tax scrutiny over cross-border equity holdings, offshore trusts and overseas insurance products represents just one facet of this shift.
In late 2024, Beijing began phasing out export tax rebates for aluminium, copper and photovoltaic products and it trimmed rates for lithium-ion batteries earlier this year. In 2025, authorities rolled out new VAT rules governing gold and bond investments. Additional adjustments are slated for early next year: certain vehicle and vessel tax incentives are set to be withdrawn.
Concurrent with these measures, regulators have been broadening tax collection, including on revenues generated by platform economy players such as e-commerce and gig economy firms.
A growing number of listed firms have filed disclosures this year stating that local tax authorities have ordered them to settle outstanding back taxes. The biggest single settlement on record belongs to northeastern China’s Heilongjiang Beidahuang Agriculture. The total came to 1.41 billion yuan (US$209 million), covering both overdue corporate income tax and penalty surcharges.
“China’s recent tax measures are not isolated policy adjustments, in our view. Together, they point to a shift in policy priorities from tax relief towards fiscal sustainability,” Winnie Wu, head of Asia-Pacific equity strategy at BofA Global Research, wrote in a report released on Sunday.
“The direction is increasingly clear,” she added.
Why now? Falling revenue and rising debt
Though the legal framework on taxation of offshore assets was put in place years ago, enforcement of these rules was substantially tightened last year, and the strict regulatory stance has carried through into 2026.
“The revised Individual Income Tax Law enacted in 2018 incorporated anti-tax avoidance provisions and bolstered tax collection on offshore gains earned by Chinese residents,” noted Li Xuhong, a professor at Beijing National Accounting Institute, in a 2019 article published on the Ministry of Finance website.
In the first half of 2026, personal income tax revenues topped 898 billion yuan, marking an increase of 13.1 per cent year on year, surpassing consumption tax to become China’s third-largest tax source.
At a press briefing on July 28, the chief auditor of the State Taxation Administration (STA), Wang Shiyu, said: “We have continued to strengthen tax compliance and set up supervision. For taxpayers who need to settle outstanding tax liabilities, we provide full-cycle follow-up and guidance. At the same time, we are also standardising the tax oversight of offshore gains.”
Winnie Wu noted: “As tax revenue and land-related income weaken, debt issuance has become an increasingly important source of fiscal resources. ... Against this backdrop, stronger tax compliance and revenue expansion have become increasingly important to support fiscal sustainability and contain debt growth.”
According to BofA Global Research, China’s broad government revenue remained at 30 to 32 per cent of gross domestic product from 2010 to 2021, but fell to only 24 per cent in 2025. Among all categories of taxes, property-related taxes saw the most pronounced decline in revenue, with growth falling 4.4 per cent in 2025 after 2.4 per cent growth in 2015.
Taxation: from self-compliance to data empowerment
Abundant data availability constitutes another key driver behind the intensified collection efforts.
Phase IV of the Golden Tax System, the smart taxation platform built by the STA, entered nationwide pilot deployment in 2023. The system exchanges information with financial institutions, customs authorities, market supervision departments, police and payment service platforms, providing tax officials with a comprehensive overview of taxpayers’ financial and economic profiles.
Beijing has also facilitated increased cross-departmental cooperation. For example, once the People’s Bank of China identifies suspicious transactions potentially linked to money laundering, it will forward relevant information to other authorities, including tax regulators, for joint scrutiny.
Meanwhile, taxation enforcement targeting offshore trusts relies on the Common Reporting Standard. Under the regime, banks and financial institutions must gather client account information and exchange the data with tax authorities in participating jurisdictions. -- SOUTH CHINA MORNING POST
