Fiscal, tax system reform essential in China's medium-term plan

BEIJING -- Fiscal and tax reform, one of six reforms reviewed by China's Central Leading Group for Deepening Overall Reform at its latest meeting, is likely to top the agenda in the next five years, experts say.

At Tuesday's meeting, President Xi Jinping urged Communist Party of China and government officials at all levels to show greater determination and perseverance in advancing reforms and to find solutions to new problems arising from the reforms.

The leading group adopted six plans covering State-owned enterprises, fiscal and tax, finance, judiciary, people's livelihood and party building.

Fiscal and tax system reform will be vitally important for the 13th Five-year Plan (2016-2020), which is high on the agenda of October's plenary session of the Communist Party of China Central Committee, experts agreed.

"The reform will concentrate on budget management, tax reform and the fiscal relationship between central and local governments, " said Ba Shusong, chief economist at the China Banking Association.

"China needs to deepen the fiscal and tax system reform in order to build a modern fiscal system," said Ba.

Tax reform will focus on the introduction of property tax, adjustment of consumption tax and renovations of individual income tax, according to Ba.

The theme for the tax reform is to "cut indirect taxes" like consumption tax and "add direct ones" such as property tax, said Gao Peiyong, president of the National Academy of Economic Strategy, which is affiliated with the Chinese Academy of Social Sciences.

For the financial relationship of the central and local governments, Gao believes the reform will delegate more power to local government for tax income in order to help them balance income and expenditure.

For years China has struggled to rein in local government debt. There is no official public data on the size of the problem, but the NAO estimated direct local government debt at 10.9 trillion yuan ($1.7 trillion) at the end of June 2013.