(Yicai) July 24 -- China has decided to improve and expand the tax income sources available to local governments to help overcome the financial difficulties they face.

“To place more fiscal resources at the disposal of local governments, we will expand the sources of tax revenue at the local level and grant greater authority for tax management to local governments as appropriate,” according to the Resolution of the Central Committee of the Communist Party of China on Further Deepening Reform Comprehensively to Advance Chinese Modernization.

Among the measures proposed in the broad reform plan published on July 21 are the rolling together of the urban maintenance and construction tax, education surcharges, and local education surcharges into one single local surtax, for which governments will have the authority to set the rate within a certain range.

The move to introduce a single local surtax will simplify taxation, stabilize local government tax revenues, and make these authorities more active in management, Luo Zhiheng, chief economist at Yuekai Securities, told Yicai.

The central government will integrate the three into one surtax because they are calculated based on the value-added and consumption taxes, said Shi Zhengwen, director of the Center for Research in Fiscal and Tax Law at the China University of Political Science and Law.

The urban maintenance and construction tax is calculated by multiplying the VAT and the consumption tax paid by taxpayers by the corresponding urban construction tax rate. The base for calculating education surcharges is 3 percent of the VAT and consumption levies paid by taxpayers. Local education surcharge rates are based on 2 percent of the VAT and consumption taxes.

Last year, the urban maintenance and construction tax brought in CNY522.3 billion (USD71.8 billion) for local authorities, accounting for 4.5 percent of their general public budget revenue, according to finance ministry statistics. There is no public data on the amount they raised from education and local education surcharges.

A key feature of them being combined into one surtax is that local governments will be able to set the rate, according to Qiao Baoyun, dean of the China Academy of Public Finance and Public Policy at the Central University of Finance and Economics. This way, each authority will have its own rate depending on its actual situation, with the local surtax matching the level of local public services.

Large cities, for example, could set a higher local surtax because they offer more public services, Qiao noted.

But Tian Zhiwei, deputy director of the Institute of Public Policy and Governance at Shanghai University of Finance and Economics, believes that introducing a single surtax is unlikely to have a big impact on fiscal revenues because localities are reluctant to set a high surtax rate as they want to attract investment and companies and improve their business environment.

Editor: Futura Costaglione