Between 1949 and 1978, China exercised a fiscal and
taxation system adapted to a system of planned economy.
Financial policy thus covered every aspect of social life.
But since the introduction of the policies of reform and
opening to the outside world, China’s finance sector
has broken away from the unified distribution of revenues
and expenditures system that complied with a
highly-concentrated system of planned economy, and gradually
carried out reforms of the fiscal and taxation system. The
reform is aimed at diversifying financial policy and
distributing mostly by coordinating benefits for the purpose
of controlling economic operations indirectly and guiding
resource distribution. Since 1984, the Central Government
first practiced different responsibility methods for revenue
and expenditure in different places, and then shifted the
national budget system from single entry to double entry. In
1992, in order to meet the needs of micro-control, the
financial system started to be greatly reformed. By 1994, a
structure of financial system meeting the needs of the
socialist market economy, with tax distribution as the core,
has been primarily formed. Its major contents are: (1) on
the basis of the taxation system, to establish a multi-level
financial system that rationally divides central taxes,
local taxes and taxes shared by the central and local
governments; (2) in the aspect of taxation policy, to set up
a new system of turnover tax with added value as the
mainstay, and consumption and business taxes as supplements,
and at the same time to establish and perfect the income tax
system; (3) to practice a double-entry budget system
consisting of regular and constructive budgets; (4) to
promote the balance of total economic output and the
economic structure by means of comprehensively utilizing the
budget, taxation, the state debt and allowances.
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