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May 05, 2016

China’s Tax Administration Modernization Strategy

Posted by Juan Toro and John Brondolo[1]

China’s State Administration of Taxation (SAT) has recently published the Blueprint for Deepening the Reform of Tax Administration which provides a roadmap for continuing to modernize tax administration over the next five years. The plan reflects many good practices recommended by IMF technical assistance. There are also a few areas where it can be strengthened, as described below.

The Blueprint builds on the great strides that China has made in strengthening its tax system (policy and administration) over the last two decades. Since the early 1990s, the tax system has been greatly simplified, including by reducing the number of taxes from 35 to 18. Clearer accountabilities have been established for collecting central and local taxes through the creation of separate national and local tax authorities, respectively. The tax authorities’ powers and taxpayers’ rights have been codified in a tax procedures law, and many tax administration procedures have been computerized. These improvements have reduced tax evasion and taxpayers’ compliance costs, and helped to double China’s tax yield from 9.7 percent of GDP in the mid-1990s to 18.7 percent of GDP in 2014.

Notwithstanding the significant progress that China has made in strengthening its tax administration over the last 20 years, the SAT recognizes that the tax system faces a number of emerging challenges that must be addressed. These include the need for further deepening the strategic approach to administering the tax system, streamlining organizational structures and clarifying division of responsibilities, modernizing administrative processes, and using enforcement powers more consistently.

By addressing the aforementioned challenges, the Blueprint aims to create a modern tax administration system by 2020 that will support healthy economic development and meet the requirements of an efficient public governance system. To this end, the reform strategy is founded on four overarching objectives: (1) reduce tax collection cost and compliance burdens; (2) increase the efficiency of tax administration; (3) strengthen the awareness of tax compliance; and (4) improve taxpayer satisfaction. These objectives are underpinned by a broad range of initiatives that aim at:

  • Streamlining the division of responsibilities between the national and local tax agencies;
  • Introducing innovative taxpayer services;
  • Developing new approaches to managing the administration of the tax system, including expanding the use of risk management;
  • Expanding co-operation with other jurisdictions to combat cross-border tax avoidance and evasion; and,
  • Refining the SAT’s organizational structure at each level of administration, and strengthening the professionalism of tax officials.

Thus, the SAT’s Blueprint is comprehensive and provides a sound basis for addressing many of the challenges facing China’s tax system. Crucially, it enjoys the support of the highest levels of China’s government, having been issued by the State Council.

The IMF has supported China’s ongoing tax administration reforms over the last several years, including by providing guidance on various initiatives in the Blueprint. Its development is well described in a recent IMF Working Paper entitled Tax Administration Reform in China: Achievements, Challenges, and Reform Priorities. Further IMF support, including for implementing the SAT Blueprint, will be provided under the auspices of a new technical cooperation agreement that the SAT and IMF entered into on March 23, 2016. This three-year project in tax policy and administration reform builds on the long and productive history of cooperation between the two agencies that dates back to the early 1990s. Refer to IMF Press Release No. 16/133 for further information.

[1] Juan Toro is an Assistant Director of the IMF’s Fiscal Affairs Department (FAD).  John Brondolo is a Senior Economist (FAD).

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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