Liu Zuo: China should not rush to raise its tax burden
Veteran tax official says targeted cuts remain necessary and feasible despite fiscal strain.
Beijing has signalled that the country’s overall tax burden should be kept at an “appropriate level” in the coming five-year plan, sharpening an argument among economists about what “appropriate” should mean. While some economists have highlighted a sustained fall in the macro burden and urged fresh fiscal reform to shore up strained local finances, Liu Zuo, Vice President of the Fiscal and Tax Law Research Association, China Law Society, and former Director of the Taxation Science Research Institute under the State Taxation Administration of China, cautions against any quick pivot towards higher levies, arguing there is still room for targeted tax-and-fee cuts without compromising longer-term sustainability. He adds that the bigger priority is to improve the burden’s composition, shifting away from non-tax and quasi-fiscal charges towards standard taxes, and keeping debt growth in check.
In the late 1980s, Liu served as secretary to China’s top tax officials, and subsequently spent his entire career within the State Taxation Administration system.
The article was published on 5 February on the official WeChat blog of the New Economist Think Tank.
关于当前我国宏观税负走势的初步探讨
A Preliminary Discussion on Recent Trends in China’s Overall Tax Burden
On 23 October 2025, the Fourth Plenary Session of the 20th Central Committee of the Communist Party of China adopted the Recommendations of the CPC Central Committee on Formulating the 15th Five-Year Plan for National Economic and Social Development, which proposes, “the overall tax burden should be kept at an appropriate level.” This represents the latest major guiding statement on the overall tax burden since the “stabilising the tax burden” and “tax and fee cuts” policy direction was put forward.
The overall tax burden is a foundational element of any tax system, with direct implications for economic development, people’s livelihoods, and political and social stability. For this reason, designing and adjusting the overall tax burden effectively and promptly is a critical task for all countries as they build their tax systems. These decisions must be based on the country’s specific national conditions: they should consider the needs and feasibility of government revenues and expenditures, ensure that taxpayers’ capacity to bear the burden aligns with the public services they receive, and take into account factors such as international economic competition and tax competition. In this context, the overall tax burden is a policy-intensive, professionally demanding, and technically complex issue. As such, it deserves careful study and broad-based deliberation.
I. Basic concept of the overall tax burden
What is the overall tax burden? This is an interesting and fundamental question that is both simple and complex—but it must be clearly defined. Many have asked me: Is China’s overall tax burden high or not? Why do fiscal authorities, the business community, and academia hold such different views? Some in fiscal and tax agencies argue that China’s overall tax burden is not high, while many in the business community believe the opposite. Scholars, too, have varying opinions.
In my view, each side has a valid perspective, but they approach the issue from different angles and with different metrics. Fiscal and tax authorities typically focus on a narrower or more medium-level measure of the tax burden, while the business community tends to refer to a broader measure. Scholars’ definitions also differ. Additionally, the data sources used by each group vary, which results in different conclusions. Unless otherwise noted, the data used in this article primarily comes from the latest releases by the Ministry of Finance of the People’s Republic of China.
In current usage by tax authorities, the overall tax burden generally includes only 16 taxes collected by the tax administration, such as value-added tax (VAT), consumption tax, corporate income tax, individual income tax, and real estate tax. Import VAT and consumption tax collected by customs are excluded from this measure. According to the State Taxation Administration of China, the net revenue from these 16 taxes in 2024 amounted to approximately RMB 15.427 trillion, or 11.4% of that year’s GDP (preliminary 2025 estimate: about 11.2%).
By contrast, the definition used by fiscal authorities includes, in addition to the 16 taxes, customs duties, vessel tonnage tax, and the import VAT/consumption tax collected by customs. In 2024, the total revenue from these 18 taxes was about RMB 17.501 trillion, or 13% of GDP (preliminary 2025 estimate: about 12.6%). Calculated based on national fiscal revenue (i.e. general public budget)—encompassing both tax revenues and non-tax revenues such as fees and charges—the 2024 total was RMB 21.973 trillion, or 16.3% of GDP (preliminary 2025 estimate: about 15.4%).
The measure of the overall tax burden used by the business community not only includes taxes and government charges within the national fiscal revenue but also other payments to the government, such as social insurance contributions, government-managed funds, and remitted profits from state-owned enterprises. This measure may even encompass unreasonable or unlawful government revenues, such as certain charges, fines, levies, and “sponsorships.” Even when corporate profits are low, or when losses occur, and wages are modest, social insurance contributions are generally not exempted. From my personal experience working for several years in a public institution run on an enterprise-like model, I have a direct sense of the burdens faced by both enterprises and employees.
In the early years of reform and opening up, China’s government revenue primarily came from fiscal sources, with minimal contributions from other categories. The ratio of fiscal revenue to GDP was largely in line with the overall government income to GDP, aligning with the broad measure of the overall tax burden. However, over time, non-tax government revenues, particularly those outside the general public budget, began to increase, and their scale grew, sometimes even becoming difficult to control. As a result, government revenue and the burden on enterprises—i.e., the broad measure of the overall tax burden—began to diverge significantly from the past. Additionally, certain unreasonable or unlawful government revenues have increasingly crowded out regular tax revenue, fiscal revenue, and overall government income.
A commonly accepted indicator of the overall tax burden, both domestically and internationally, is the ratio of a country’s government revenue in a given year to its GDP in that year—i.e., the broad measure of the overall tax burden. According to the government finance statistics framework of the International Monetary Fund (IMF), government revenue should include taxes, social contributions, grants, and other revenue (primarily property income, sales of goods and services, and fines, penalties, and forfeits).
Using this framework, China’s Ministry of Finance calculates “general government revenue,” which includes four components: general public budget revenue; government-managed fund revenue (e.g., the Railway Construction Fund, Civil Aviation Development Fund, and lottery public welfare funds, excluding net proceeds from state-owned land transfers); state capital operation revenue (e.g., profits remitted from state-owned enterprises in sectors such as tobacco, oil, petrochemicals, and power); and social insurance fund revenue (primarily from basic pension and medical insurance funds). This is commonly referred to as the “full-measure” or “four-budget framework.”
In 2024, the total for these four components was RMB 21,973.4 billion, RMB 1,433.2 billion, RMB 679.1 billion, and RMB 12,013.5 billion, respectively. After removing double-counted portions, the consolidated total was RMB 33,375.3 billion, or 24.8% of GDP.
Some people simplify the calculation of China’s overall tax burden by summing the four revenue components without removing the double-counted portion. Others add up the statutory rates of major taxes and fees—such as VAT, corporate income tax, individual income tax, and social insurance contributions—as China’s overall tax burden, without considering the relationship between each rate and its tax base. These methods are clearly flawed, and their results are not reliable.
Additionally, some argue that, given China’s specific circumstances, the net proceeds from state-owned land right transfer (currently categorised under government-managed fund revenue) should also be included in government revenue. This viewpoint is reasonable and warrants further discussion. There are also differing opinions on whether tuition fees, medical charges, and similar fees collected by public institutions such as schools and hospitals should be counted as government revenue.
II. Adjustments to China’s overall tax burden in recent years
In November 2013, the Third Plenary Session of the 18th CPC Central Committee adopted the “Decision of the CPC Central Committee on Several Major Issues Concerning Comprehensively Deepening Reform”, which called for the stabilisation of the overall tax burden. At the time, interpretations of this directive varied: some saw it as a measure to prevent further increases in the overall tax burden, thus avoiding heavier taxpayer burdens; others viewed it as a call to prevent a decline in the overall tax burden, which could lead to greater fiscal pressure; others considered both perspectives.
Subsequently, due to changes in the global economic environment, a slowdown in China’s economic growth, and the relatively heavy tax and fee burdens on businesses, calls for tax and fee cuts from enterprises grew steadily. This concern quickly garnered high-level attention from the CPC Central Committee, the National People’s Congress (NPC), the State Council, and leading officials, prompting swift action. For instance, the Central Economic Work Conference in December 2015, as well as in the Outline of the 13th Five-Year Plan for National Economic and Social Development and the 2016 Government Work Report, all called for reducing enterprises’ tax-and-fee burdens. As a result, China’s policy stance on tax and fee burdens began to undergo a significant shift.
In July 2016, the Political Bureau of the CPC Central Committee proposed lowering the overall tax burden, clarifying the direction of the adjustment, which was no longer limited to enterprises’ tax burdens. In December of the same year, the Central Economic Work Conference further refined this position by emphasising “tax and fee cuts,” thereby making the objective of reducing the overall tax burden more explicit and precise—both tax reductions and fee reductions were to be pursued.
According to the Ministry of Finance, since 2017, the annual nationwide total of tax and fee cuts has exceeded RMB 1 trillion each year, surpassing RMB 2 trillion in some years. In 2020, this figure exceeded RMB 2.6 trillion. These cuts have continued annually through to 2026, covering areas such as VAT, consumption tax, tariffs, enterprise income tax, individual income tax, social insurance contributions, and various government-managed funds and charges. In parallel, the ratio of total government revenue to GDP has shown a clear, gradual decline—from 28.5% in 2015 to 24.8% in 2024, a decrease of 3.7 percentage points over nine years (a 13.0% decline). For the years 2020–2024, the annual ratios were 24.3%, 24.9%, 24.3%, 25.1%, and 24.8%, respectively. This trend indicates that China’s broad-calibre overall tax burden has generally remained stable.
III. A Preliminary discussion of the trajectory of China’s overall tax burden
IMF government finance statistics show that in recent years, developed economies typically have broad measures of the overall tax burden above 30% of GDP, with several exceeding 40% or even 50%. For example, in 2024, France’s government revenue was approximately 51.4% of GDP, Sweden at 47.6%, Canada at 42.7%, Japan at 37.6%, and Australia at 36.7%. Developing economies generally have overall tax burden levels closer to around 20% of GDP. For example, in 2024: Thailand at 21.4%, India at 20.5%, Kazakhstan at 19.1%, Myanmar at 15.6%, Kenya at 17.5%, Egypt at 15.8%, Democratic Republic of the Congo at 15.2%, Uganda at 14.7%, Mexico at 24.6%, Chile at 23.9%, Peru at 18.7%, and Venezuela at 14.0%.
Overall, China’s overall tax burden level in recent years is clearly lower than that of developed economies, while being relatively high among developing countries. At the same time, research on the tax burden should not only examine the ratio of government revenue to GDP; it should also consider cross-country differences in economic development and social governance capacity, and assess the overall tax burden together with factors such as the scale of government debt and the scope and quality of public services.
Practice shows that in recent years, the CPC Central Committee and the State Council’s decisions on tax and fee cuts have been correct, with clear effects. Looking ahead, to maintain a reasonable overall tax burden level, it is first necessary to consider China’s current overall tax burden level and relevant factors. With global economic slowdown and widespread adoption of stimulus measures like tax cuts, alongside the pressures facing China’s economic development and ongoing tax and fee reductions, rushing to significantly increase China’s overall tax burden would likely hinder economic growth, the improvement of livelihoods, and the enhancement of international competitiveness. Since China’s current overall tax burden is already relatively high, there is still room for further tax and fee reductions. Continuing to make appropriate cuts is not only necessary but also feasible.
First, tax and fee cuts are conducive to sustained and stable economic development, which generates increasing fiscal resources for the government over time, as demonstrated by international experience and China’s own practice. In 2025, China achieved its target of 5% annual economic growth set at the beginning of the year. Growth is expected to remain stable in 2026, with tax revenue, fiscal revenue, and government income gradually increasing accordingly.
Second, reform and improve the tax-and-fee system, particularly by promptly enhancing the consumption tax and individual income tax regimes, which are key taxes in China. Additionally, gradually convert government fees and funds with tax-like characteristics, such as social insurance contributions, into taxes. These measures would facilitate the implementation of more standardised and efficient administration, significantly increasing tax and fee revenue.
Third, measures such as improving tax and fee management systems, strengthening collection, enhancing the competence of collection personnel, and upgrading collection equipment and technology can further improve the efficiency of the collection process, reduce costs for both tax authorities and taxpayers, and reduce leakage of taxes and fees. This would increase government revenue from multiple channels. For example, in recent years, the digital management level of the national tax system has significantly improved, yielding notable results. In addition, tax authorities, customs, and public security agencies have collaborated to investigate and resolve numerous tax violations in accordance with the law, recovering substantial tax revenue and mitigating economic losses.
Fourth, other sources of revenue also have significant potential for growth, especially enterprises that receive broad government support and have abundant resources and strong capabilities (such as state-owned and state-controlled enterprises in tobacco, petrochemicals, investment services, power, telecommunications, finance, insurance, and securities), which may be able to provide more revenue to the government. The Decision of the Third Plenary Session of the 20th CPC Central Committee has already proposed that “all revenues generated based on the exercise of administrative power, government credit, and state-owned resources and assets will be placed under government budget management”; this should also generate considerable government revenue.
At the same time, government expenditure management should continue to be strengthened—spending within revenue constraints, acting within capacity, and striving to do what is feasible. If all levels and all sectors of government work together to rationally determine expenditure items and standards, practice frugality, improve efficiency, reduce costs, cut losses and waste, and severely punish corruption, the potential to reduce government spending is significant. For example, audit authorities identify and address numerous violations each year during audits of government expenditures, and discipline inspection and supervisory bodies have opened hundreds of thousands of cases annually in recent years. The economic losses, burdens, and harmful social impacts caused by corrupt officials are staggering. From a medium- to long-term perspective, further deepening the reform of Party and state institutions—reducing agencies, personnel, and associated expenditures to ease the public burden and allocate more financial resources to economic development and improving livelihoods—remains an important and challenging task.
From a medium-to-long-term perspective, considering the overall trends in global economic development, changes in the overall tax burden, and China’s own circumstances, it will become both necessary and feasible to gradually and appropriately raise China’s overall tax burden. As the economy expands, per capita GDP increases, the quality of development improves, livelihoods advance, and government revenue and expenditure management become more refined. This adjustment will align with China’s evolving economic conditions.
In addition, optimising the structure of the overall tax burden is also important. First, through tax-and-fee reform, the share of tax revenue within government revenue should be gradually increased, and the share of non-tax revenue reduced. In 2024, within China’s government revenue, tax revenue accounted for only 52.4% while non-tax revenue was as high as 47.6%; in some localities, non-tax revenue already far exceeded local tax revenue. In 2024, nationwide social insurance contribution revenue was RMB 8,826.3 billion, RMB 2,253.6 billion [the figure reported in the China Statistical Yearbook 2025 is 2,152.9 billion. —translators’ note] more than VAT revenue of RMB 6,572.7 billion [the figure cited in the same yearbook is 6,673.4 billion], China’s largest tax, and equivalent to 50.4% of total national tax revenue (preliminary 2025 estimate: about 51.7%). This situation should be changed as soon as possible.
Second, the scale and growth rate of government debt should be appropriately controlled, because bonds issued now will in the future rely primarily on tax revenue for repayment of principal and interest. In that sense, government bonds are akin to taxes used in advance, or collected later. In 2024, China’s central and local governments issued bonds totalling RMB 14,645.5 billion—equivalent to 83.7% of that year’s national tax revenue, 66.7% of general public budget revenue, and 45.1% of government revenue. By the end of 2024, China’s outstanding government debt balance had reached RMB 92.6 trillion—equivalent to 5.3 times national tax revenue, 4.2 times general public budget revenue, and 2.8 times government revenue for that year. Of this, the outstanding central government bond balance was RMB 34.6 trillion; the balance of local government statutory debt was RMB 47.5 trillion; and the balance of local government implicit debt was RMB 10.5 trillion. The immediate repayment pressures and long-term impacts of these debts should not be ignored.
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