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Tax reform is an important component of China's overall economic reform because taxation raises government revenue and influences enterprise decisions, without subjugating enterprises to direct government control. This paper presents an overview of China's tax reform since 1983. The main feature of this tax reform was that state enterprises began paying industrial and commercial taxes instead of remitting profits, referred to as li gai shui (changing profit to tax). In principle, this tax reform contained many desirable characteristics, but problems with other aspects of economic reform have diluted the positive incentive effects implicit within the new tax system.


Originally published in:

Penelope B. Prime. Taxation Reform in China's Public Finance. In United States. Congress. Joint Economic Committee. (1991). China's economic dilemmas in the 1990s: the problems of reforms, modernization, and interdependence : study papers submitted to the Joint Economic Committee, Congress of the United States. Washington: U.S. G.P.O.