In-depth Reading of Government Work Report | Exclusive Interview with Shi Zhengwen: Increasing the Dividend Payout Ratio of State-owned Capital Can Be Primarily Used for Public Welfare, Scientific and Technological Innovation and Other Fields

March 5th, the 14th National People’s Congress Fourth Session opened at the Great Hall of the People in Beijing, with Premier Li Qiang delivering the government work report on behalf of the State Council. Regarding fiscal and tax system reform, compared to last year, the “Government Work Report” added statements such as “raising the proportion of state-owned capital returns,” “improving the local tax system and expanding local tax sources,” and “adjusting and optimizing the scope and rates of consumption tax.”

What problems does increasing the collection ratio of state-owned capital returns mainly address? Once collected, how can this money be used? What are the ways to expand local tax sources? Which aspects of the local tax system need urgent improvement? When optimizing the scope of consumption tax, which products might be included or excluded?

Focusing on these questions, a reporter from Daily Economic News (hereafter “NBD reporter”) interviewed Shi Zhengrong, Director of the Tax and Fiscal Law Research Center at China University of Political Science and Law. Shi Zhengrong is the Secretary-General of the drafting team for the “Basic Tax Law of the People’s Republic of China (Expert Draft)” and Deputy Leader of the drafting team for the “Tax Law General Principles (Expert Draft).” He has long been involved in legislative consulting for laws such as VAT Law, Corporate Income Tax Law, Personal Income Tax Law, Tax Collection and Administration Law, Budget Law, Environmental Protection Tax Law, and Customs Law.

Shi Zhengrong: Increasing the proportion of state-owned capital returns is an important measure to improve people’s livelihood security and boost technological investment.

NBD: The government work report proposes to strengthen fiscal resource coordination and increase the collection ratio of state-owned capital returns. What main issues does adding this content aim to solve?

Shi Zhengrong: This is a key measure in deepening fiscal and tax system reform, aligned with future development goals and new circumstances. One core aspect is to enhance the coordination of fiscal resources and budgets.

In recent years, influenced by economic downward pressure and other factors, China’s fiscal balance has become tight. Although the economy is showing signs of recovery and improvement, uncertainties remain, requiring more proactive fiscal policies, increased macro-control efforts, and better utilization of government functions. This necessitates scientifically unified allocation of fiscal resources to address the tight balance challenge and fulfill the proactive role of fiscal policy.

If fiscal resources are dispersed among various units, it becomes difficult to form a concerted effort. For example, with regard to returns from state-owned capital, before remittance, funds are scattered across financial institutions and state-owned enterprises, making it impossible to coordinate their use in supporting major national reforms and development strategies. Under tight resource conditions, unified allocation—such as advancing zero-based budgeting reforms—is necessary to improve resource efficiency, concentrate financial power on major projects, and effectively respond to high-risk areas in economic operation, ensuring funding for key high-quality development projects.

Therefore, increasing the remittance ratio of state-owned capital returns is an inevitable choice. Since the Third Plenary Session of the 18th CPC Central Committee proposed gradually raising the remittance ratio to 30%, relevant work has been steadily advancing. Implementation should follow a differentiated approach: on one hand, enterprises not yet meeting the 30% requirement should reach it; on the other hand, ratios should be set according to industry characteristics, with higher proportions for highly profitable competitive sectors, such as 30%, 40%, or 50%.

Currently, while implementing more proactive fiscal policies, economic downturns and difficulties faced by enterprises limit the ability to raise taxes. Expanding domestic demand and promoting consumption require resources beyond taxation, and the concentrated, efficient use of returns from state-owned capital becomes an important lever. This aligns with the fundamental purpose of state-owned enterprises to benefit the public and is also a necessary measure to promote social fairness.

NBD: Once collected, how can this money be used?

Shi Zhengrong: Once remitted into the general public budget, the funds are mainly used for livelihood security, technological innovation, and other areas to serve development goals. Expenditure on science and technology is a vital part of the general public budget, covering basic research, technological promotion, and major innovation projects at research institutions, universities, the Chinese Academy of Sciences system, and national ministries, including new energy, key core technology breakthroughs, etc. Given the accelerating pace of technological change and the urgent need for innovation-driven industrial chains, increasing investment in technological innovation is essential to support high-quality development.

Strengthening the local tax system helps implement social security policies

NBD: The government work report proposes to improve the local tax system and expand local tax sources. What aspects of the local tax system need urgent improvement? What are the ways to expand local tax sources?

Shi Zhengrong: This issue has been a focus since the Third Plenary Session of the 18th CPC Central Committee. The core is to improve the local tax system. A key task in fiscal and tax reform is to clarify the fiscal relationship between central and local governments, achieving a reasonable match of tax source allocation, revenue, expenditure responsibilities, and powers. Currently, the main problem is that local governments bear substantial expenditure responsibilities, but their tax rights and revenue are seriously mismatched, leading to increased fiscal difficulties as administrative levels descend, which hampers government functions and public service delivery, including social security.

Over years of reform, the focus has mainly been on central taxes and shared taxes, while local tax categories lag behind. The tax system division does not fully reflect local fiscal needs, resulting in insufficient local fiscal capacity and a situation where the “central tax system is relatively sound, but the local tax system has shortcomings.” Therefore, improving the local tax system is an urgent reform task.

Building the local tax system should proceed on multiple fronts: first, clearly defining local main taxes and assigning appropriate tax rights to enhance local fiscal strength; second, expanding tax sources at the economic level to provide sustainable revenue for local finances. Specific measures include adjusting the division of central taxes and shared taxes, converting some taxes currently under central control (such as consumption tax) into shared taxes, and increasing the local share; also, actively expanding tax bases suitable for local taxation.

From international experience, real estate tax is a primary tax source for local governments (similar to county-level governments in China). However, given current real estate market conditions and housing prices, reform of real estate tax is not yet feasible, though it remains a long-term potential source.

Optimizing the scope of consumption tax and shifting its collection point can help expand local tax sources

NBD: Building on last year’s proposal to “advance the shift of some consumption tax collection points,” this year’s government work report adds “adjust and optimize the scope and rates of consumption tax.” Why make this adjustment?

Shi Zhengrong: Which taxes are suitable as local taxes? One approach is to establish main taxes at the provincial level. International experience shows that consumption tax plays an important role in improving the local tax system. Therefore, this reform proposes to adjust and optimize the scope and rates of consumption tax and to shift its collection point.

Shifting the collection point of consumption tax to the retail level is an important way to expand local tax revenue. The reason is that the retail stage faces a broad consumer base and numerous retailers, and local governments collecting at this stage can achieve better information symmetry, better grasp tax sources, and motivate local governments.

However, this reform involves complex issues such as tax administration controllability and tax item compatibility, requiring cautious implementation. For example, if tobacco and alcohol are classified as local taxes and their collection is shifted to the retail stage, local governments might be tempted to relax regulation to increase consumption, conflicting with the policy goal of using consumption tax to regulate consumption behavior and promote healthy consumption. Additionally, shifting collection to retail or wholesale levels presents challenges like numerous taxpayers, difficult administration, and high risk of tax leakage. Therefore, shifting collection points must be carefully chosen within the current tax framework, considering two principles: first, the tax items should align with the regulation direction of consumption tax; second, administrative capacity should match the shifted collection point to ensure tax control.

A more balanced approach is to combine shifting collection points with scope optimization: gradually including items currently outside the scope of consumption tax but suitable for taxation; and for newly added items that are appropriate for collection at the retail or wholesale stage and do not conflict with regulatory goals, implementing the shift and adjusting tax rates simultaneously.

Consumption tax mainly functions to regulate, with revenue as a secondary goal

NBD: Which products might be included or excluded?

Shi Zhengrong: There is no definitive list of specific products for consumption tax scope at present; multiple options exist. Overall, the reform should adhere to the regulation direction set by the central government, focusing on including high-pollution, high-energy-consuming, and high-consumption products. It is important to clarify that the primary function of consumption tax is regulation, with revenue as a secondary goal. Its core objectives are to guide consumption behavior, promote ecological and environmental protection, facilitate green industry transformation and low-carbon development, and advocate healthy consumption.

In the high-end consumption sector, the current scope is relatively limited. Future considerations could include private jets, high-end clothing, luxury hotels, and entertainment. For products with negative health impacts, such as tobacco, tax rates could be moderately increased. Regarding sugar-sweetened beverages, careful study is needed: on one hand, China’s residents’ sugar intake differs from international levels; on the other hand, the main consumers are middle- and low-income groups, and imposing taxes could burden livelihoods. Therefore, thorough analysis is required.

For luxury goods, a differentiated approach with both increases and decreases in tax rates should be adopted. For example, tax rates on cosmetics could be lowered to meet residents’ improving quality of life, while high-end watches, jewelry, and jade products could see moderate increases. In the green development direction, high-pollution and high-energy-consuming products should be key focus areas for reform.

As for new energy vehicles, with the automotive industry shifting toward new energy, they are a significant potential tax source. Shifting consumption tax collection to the retail stage for new energy vehicles is feasible, as it aligns with policy regulation directions. International experience indicates that new energy vehicles are not necessarily exempt from consumption tax. Although their use stage pollution is lower, their entire lifecycle (including power generation and manufacturing) still impacts the environment, so full exemption is unreasonable. It is recommended to adjust current preferential policies, include them in the scope of taxation with moderate discounts, and gradually transition to taxing based on actual emissions rather than just engine displacement.

Additionally, the Third Plenary Session of the 20th CPC Central Committee proposed reforming local surcharges, merging urban construction tax and education surcharge into a local surcharge. Local surcharges mainly serve to raise revenue, complementing the regulation function of consumption tax. Combining these can achieve both regulation and funding goals. Such reforms should be implemented cautiously, with classified policies and steady progress.