Half a year ago, Shanghai piloted a tax reform in the transportation and modern services sectors, replacing their business tax with value-added tax.

Since business tax is the No 1 tax revenue source for local governments, the reform, which relieves the tax burdens of those sectors, caused concerns among local governments.

Yet, Shanghai's economic data for the first two quarters of 2012 proves that the initial concerns of local governments were not necessary.

Although Shanghai's GDP grew 7.2 percent, slightly lower than the national average, the growth of its modern services sectors, such as IT industries, was 18 percent, and the modern logistics industry grew 12.1 percent, contributing for 82.6 percent of Shanghai's GDP growth.

The percentage is much higher than that of other regions and shows the strong potential for Shanghai's economic growth in the future. The tax reform obviously boosted the development of targeted industries, a necessary step for structural transformation.

Premier Wen Jiabao said on July 25 that Shanghai's reform will be implemented in other 10 provinces and municipalities. Shanghai's data not only soothes the concerns of local governments, but also proves that the revenue reduction of local governments is worthwhile to restructure local economies and industries.

Translated from Beijing Youth Daily

By Li Yang

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