China's VAT reform to strengthen local government finances

China’s central government will give fixed rebates on value-added taxes (VATs) to local governments beginning this year – a bid to beef up the local governments’ fiscal strength while tightening rules to hold them responsible for debt obligations amid slowing growth, Caixin reports. Previously, the central government handed 30% of annual increases in revenues from VATs back to local authorities, which critics say has failed to narrow regional income gaps because more-developed regions usually had faster VAT growth and therefore enjoyed larger rebates. Starting this year, though, a fixed amount will be returned, according to a statement from a meeting of the State Council, China’s cabinet, presided over by Premier Li Keqiang on Tuesday. The move is part of Beijing’s ambitious overhaul to convert business tax to VATs to reduce burdens on companies and boost the service industry and economic growth.