Full text: Report on China's central, local budgets (5)

1. Priorities in fiscal and tax reforms in 2014

Public finance is the basis and important pillar for governing the country. In order to meet all reform targets set at the Third Plenary Session of the Eighteenth Party Central Committee, it is crucial we do a good job in reforming the fiscal and tax systems this year and the following. The Party Central Committee and the State Council have decided to make work concerning the budget management system and the tax system two priorities in this year's fiscal and tax reforms. We must ensure these two systematic reforms get off to a good start.

(1) Deepening reform of the budget management system

First, we will push ahead with releasing the budgets and final accounts of governments and their departments. We will make our release of government budgets and final accounts more detailed - to subsection-level expenditures in government budgets and final accounts and to every specific project in budgets of special transfer payments. We will release more departmental budgets and final accounts and, except for those that deal with classified matters, we will release the budgets and final accounts of all central and local government departments receiving financial allocations. We will make our release of departmental budgets and final accounts more detailed and specific. In addition to subsection-level headings, we will gradually release basic and project expenditures in departmental budgets and final accounts, and we will find ways to release departmental final accounts according to their economic categories. We will redouble efforts to release expenditures with greater details on official overseas visits, official vehicles, and official hospitality, and make sure that all such publicly financed expenditures are made public.

Second, we will do mid-term fiscal planning. On the basis of the national plan for long- and mid-term development and macro-control needs, we will develop mid-term fiscal policies and formulate a three-year fiscal plan. With regard to the major reforms, policies and projects that will be included in that plan, we will research policy goals, operational mechanisms, and assessment methods. We will use the three-year fiscal plan to discipline annual budgeting so as to make our fiscal policy more comprehensive, forward-looking, and sustainable.

Third, we will improve the ways in which annual budgets are controlled. The focus of budget examination and verification will be extended to include not only how balanced they are and the size of the deficit but also expenditure budgets and policy, and we will tighten constraints on budget outlays. In principle, we will not introduce new policies that increase spending during the execution of the budget. We will make revenue projections less binding and more anticipatory, and promote law-based tax collection and management.

Fourth, we will establish mechanisms for balancing budgets that span more than one fiscal year. When there is deficit due to the adoption of any specific policy, it can be listed under the central financial budget and covered in later years after the policy is adjusted. If there is surplus revenue in the execution of the budget, it should be used to cut fiscal deficit and replenish the Central Budget Stabilization Fund. In case the revenue comes out short of the budgeted figure, efforts should be made to make up the difference by drawing on funds from the Central Budget Stabilization Fund, cutting spending, or increasing budget deficit and issuing bonds within the government debt cap approved by the NPC.

Fifth, we will review and regulate preferential fiscal and tax policies across the board in order to uphold the sanctity of laws and ensure an environment for fair competition. Policies to be reviewed include: various preferential taxes introduced to specific localities by all levels of government, including those to allow the localities to retain all their revenues or turn over their year-on-year gains; policies granting enterprises reductions of or exemptions from taxes and fees, granting them rebates after taxes are paid, giving them government subsidies, and selling land-use rights and state-owned assets to them at lower prices; and policies granting individuals reductions of or exemptions from taxes and fees, granting them rebates after taxes are paid, and giving them government subsidies. All policies violating provisions of laws or administrative regulations must be ended. Preferential tax policies will only be formulated by specialized tax laws and regulations, and no other preferential fiscal and tax policies shall be included in any development plans.

Sixth, we will establish a clearly-positioned government budgeting system with explicitly-divided functions. We will define the spending scopes and priorities of budgets for public finances, government-managed funds, state capital operations, and social insurance funds, and strengthen their coordinated management to avoid overlapping. We will put in place a mechanism for transferring money of which use should be under the overall planning of government-managed funds into the public finance budget. We will transfer more funds from the state capital operations budgets into the public finance budgets. We will enhance the management of budgets for social insurance funds, maintain and increase the value of surplus funds, and research the sustainability of budgets for social insurance funds on the basis of actuarial balance.

Seventh, we will quickly establish the method of accrual accounting for the government's comprehensive financial reporting system. We will formulate reform plans, regulations and standards as well as operation guidelines for such a system, and continue to organize local governments in preparing comprehensive financial reports on a trial basis. We will revise the public finance budgetary accounting system, with some budgetary items dealt with by accrual accounting, to provide basic data for the preparation of comprehensive government financial reports.

(2) Advancing reform of the tax system

First, we will continue with the reform to replace business tax with VAT. We will carry out this reform on a trial basis on railway transport and postal services nationwide, and we will quickly research policies for conducting this reform on telecommunications services and strive to implement them on April 1 this year.

Second, we will carry out a preferential policy of deferred payment of individual income tax to encourage the development of annuity plans in enterprises and public institutions.

Third, we will implement the reform of levying price-based resource tax on coal.

Fourth, we will further expand the preferential tax policy for small businesses with low profits.

Fifth, we will reform and improve the excise tax system, and adjust the scope and mechanisms for its collection and the rate of duty.

Sixth, we will accelerate legislation on the real estate tax.

Seventh, we will speed up legislation on the environmental protection tax.

In addition, we will quickly find ways to adjust the powers and spending responsibilities of central and local governments. We will reasonably define these powers and responsibilities among different levels of government and properly enhance those of the central government on the basis of transforming government functions and appropriately defining the boundary between government and the market. We will keep the current division of financial resources between the central and local governments stable on the whole, and take further steps to better distribute revenue between them by carrying out reform of the tax system and considering the different nature of taxes. We will help promote reform of services for the elderly, medical and health care, education, science and technology, and housing.