A debt repayment mechanism must be quickly established to cope with the local debt problem.

But fundamentally, the key to solving the problem is to further deepen reform of the tax system. The central government should take the tariffs, social security tax and personal income tax, while the local governments should expand the channels for local revenues and establish a new taxation framework.

First of all, local governments should expand the scope and variety of taxes on resources and include part of these taxes in local revenues.

Then, during the 12th Five Year Plan period (2011-2015), we should consider reforming the environment tax. Since local governments are held accountable for the well-being of their local ecologies, the revenues from the environment tax should mostly go to local governments.

Finally, we should further expand the range of real estate taxes and fully apply a property tax. The property tax collected by developed countries has already become an important part of public finance at both the state and local levels.

The author is a researcher with the State Information Center.

China Forum

(China Daily 07/20/2011 page8)