The consumption tax will most likely cover luxury products such as private jets or large emission SUVs, which can help to close the gap between rich and poor and better protect the environment, he noted.

The most important part of the fiscal reform is to clarify taxation and spending responsibilities for the central and local governments, so as to allow fair distribution of tax income and provide funding for social security, according to the finance minister.

Under the current fiscal system, the central government takes the majority of tax revenues. For example, the central government takes 75 percent of the revenue from VAT, and local governments get revenue generated from local turnover tax. The expansion of VAT reform, however, will inevitably lessen the tax revenue for local authorities.

A lack of progress in aligning tax and spending responsibilities means that local governments have limited funds to pay for increasing coverage of health, education and pensions. It also explains why local governments rely heavily on land sales to fund local projects.

A property tax is also expected to come into force by 2017 to create additional tax income for local governments and reduce their dependence on land sales, which has been blamed by many for pushing up home prices.