Reform of tax system urgently needed so local governments have the revenue needed to meet their responsibilities

Transferring power to the lower level is the main direction and axis of the new round of reforms that has begun with the institutional reform and transformation of government functions announced on Sunday. Untangling the relations between the central and local governments, decentralizing more power to local governments, matching financial power with responsibilities, and pushing forward reform of the tax distribution system are undoubtedly some of the priorities for this round of reforms.

In recent years, the insufficient financial power of local governments has forced them to squeeze money out of land, and they have developed a strong reliance on the revenue from land transfers. Meanwhile, local governments' preference for long-term investments and short-term debts has aggravated the potential risks arising from these debts. The root cause of these problems is local governments are not granted enough financial power to meet the responsibilities assigned them by the central authority.