In the past decade, tax reform has left a significant mark on China's comprehensive deepening of fiscal reform in the new era. Under the long-lasting and wide-ranging tax reform, the most impactful for enterprises is the value-added tax (VAT) reform; for ordinary people, the personal income tax (IIT) reform directly affects their wallets.

Under the tax reform, the connotation of the proactive fiscal policy implemented for many years has changed. He Daixin, director of the Fiscal Research Office of the National Academy of Economic Strategy at the Chinese Academy of Social Sciences, said that from 1998 to 2004, the proactive fiscal policy focused on expenditures, increasing government bond issuance to expand fiscal spending and strengthen infrastructure construction. Since then, the connotation of the proactive fiscal policy has become richer. China has used tax policies to reduce social burdens, especially the tax and fee burdens of market entities, and promote economic development.

Under the tax reform, there is real money. Official data shows that from 2013 to 2022, cumulative new tax and fee reductions and tax refunds and deferrals exceeded 13 trillion yuan (RMB, same below). In 2023, the scale of new tax and fee reductions and tax refunds and deferrals nationwide exceeded 2.2 trillion yuan, effectively helping to stabilize market expectations, boost market confidence, and stimulate market vitality.

During this period, China carried out a large-scale reform around the largest tax type—VAT. In 2016, the replacement of business tax with VAT was fully implemented nationwide, completing the modern transformation of the VAT system and eliminating the drawbacks of double taxation in production, circulation, and services. In 2018, the VAT reform was deepened, reducing tax rates for manufacturing, transportation, and other industries. In 2022, large-scale VAT credit refunds were implemented.

Along with the tax reform, the tax burden on enterprises has dropped accordingly. Among them, about 80% of individual businesses nationwide no longer need to pay taxes after the implementation of a series of tax and fee support policies. He Daixin said that lower tax and fee costs for enterprises lead to lower production costs, and even if income remains unchanged, domestic demand can still expand.

In 2022, Qianzhiya (Hubei) Hygiene Products Co., Ltd. received a tax refund of 21.75 million yuan. (File photo) Photo by Yan Meihua

Under the tax reform, enterprises have reduced procurement costs, and people have increased purchasing power. Starting in October 2018, a new round of personal income tax reform was implemented, the monthly basic deduction standard was raised, and special additional deductions for personal income tax were introduced and have been continuously expanded and increased.

Among the tens of millions of beneficiaries, those with elderly parents and young children feel the impact most. Shi Zhengwen, director of the Fiscal and Tax Law Research Center at China University of Political Science and Law, said that the personal income tax reform is broad in scope and benefits many people, directly reducing family burdens in areas such as children's education, housing, and support for the elderly. The reduced taxes flow into people's pockets, and their willingness and ability to consume increase accordingly. Lowering personal income tax is an important means to stimulate consumption, and income growth has a significant effect on boosting consumption among low- and middle-income groups.

In 2022, the special additional deduction for personal income tax for the care of infants and young children under 3 years old began to be implemented. After implementation, the special additional deductions for personal income tax increased from six to seven. From birth to old age, almost every stage of life has special additional deductions for personal income tax, and the tax system is more complete. (File photo) Photo by China News Service reporter Hou Yu

Bai Yanfeng, a professor at the School of Public Finance and Taxation at Central University of Finance and Economics, said that years of tax and fee reductions have precisely helped enterprises overcome difficulties; the personal income tax reform has stabilized the development and growth of the huge domestic demand market.

Facing the complex international and domestic situation and the new round of technological revolution and industrial transformation, tax reform will not stop, and efforts to continuously create a market-oriented, law-based, and internationalized tax business environment must not slacken.

Hu Jinglin, head of the State Taxation Administration, recently wrote in an article titled 'High-Quality Promotion of Chinese-Style Modernization Tax Practice' that we should continue to deepen law-based tax administration, data-driven tax administration, and strict tax administration, and continuously improve the tax authorities' capabilities and levels in tax and fee collection and management, convenient services, and risk prevention and control. We should further advance tax system reform and optimize tax and fee policies, focus on key tax types, key regions, key enterprises, and key matters to strengthen precise supervision, effectively plug loopholes and increase revenue, collect due taxes and fees in accordance with laws and regulations, and at the same time firmly uphold the bottom line of not collecting 'excessive taxes and fees', grasp the appropriate timing, intensity, and effectiveness of work, and effectively create a good tax environment for the healthy and standardized development of various business entities.

Bai Yanfeng believes that planning a new round of fiscal and tax system reform should focus on digitalization, greening, and service-oriented development, continuously promote tax fairness; accelerate the green and low-carbon process, and prevent taxation as a barometer of economic development from lagging behind; increase the proportion of consumption tax, improve the local tax system, rationalize the relationship between taxes and fees, and establish and improve a modern fiscal system that is compatible with Chinese-style modernization.