Distinct from the rest of the world, Chinese taxation follows a different rubric. And indeed, each country encompasses its own way of taxation, and China is no different. In China, we find that taxes are collected at three levels within the landscape: the state, prefectural and municipal.
The state-level taxes imposed in China are administered to collect revenue for central governments, which usually consist of income taxes and value-added taxes (VAT). The prefecture taxes imposed vary between provinces and generally include land-use tax, resource tax, registration and invoice tax, urban maintenance and construction tax and education surcharges. Furthermore, municipalities are allowed to collect an array of taxes, such as those to support public transportation, environmental management, public utilities, and public management value-added taxes.
In addition to taxes levied at the state and prefectural authority, some provinces impose what is known as a special tariff zone. Specifically, this type of taxation refers to the taxation implemented in certain provinces at a much higher rate than the rest of China. A few examples of this kind of localized tax rate standards exist in Guangdong, Fujian and Zhejiang province. In essence, these provinces have adopted an additional range of policies introduced by the central government that are implemented only at the provincial level. Such policies include higher tariffs on commodities and goods imported from outside the province, additional taxeset on property, or various additional taxes or fees on various type of services and transport.
From the perspective of fiscal revenue, local tax has grown 4 percent over the past decade, even as property tax revenue has jumped 19 percent in the same period. Currently, local tax accounted for more than 56 percent of total fiscal revenue in China. It is a vital piece of the revenue equation for most of China’s cities.
The upshot of this is that special tariff zones in China have proven to be somewhat of a double-edged sword, both economically beneficial and yet economically damaging in diverse ways. In regards to their economic benefit, their introduction has enabled provinces and municipalities to pursue their fiscal ambitions and develop infrastructures that are beneficial to the local population. However, this has come at a price, in that local taxes in the province can be much higher than they are in the rest of the country.
For instance, this has resulted in some brands or firms, particularly multinational companies and foreign investment, relocating to other cities or provinces due to the high taxesintroduced in the special tariff zones. This has had a certain economic effects on the local population in terms of jobs and economic investment.
Ultimately, the implementation of special tariff zones in China has seen its fair share of both positive and negative impacts. The positive impacts have predominantly revolved around provinces and municipalities strengthening their fiscal health, while the downside has been witnessed in terms of the out-migration of businesses and investment. Regardless of this outcome, the Chinese government will surely take into consideration the repercussions of implementing such a policy.
