According to a Decision reached during the Third Plenary Session of the 20th Central Committee of the Chinese Communist Party, China will “move the collection stage of the country’s consumption tax to later stages,” and will also “gradually allocate revenue from consumption tax to local governments.” Chinese media outlet The Paper reported that this decision to “delay the collection stage of the consumption tax” is meant to shift the tax source and collection point from the place of production to the place of consumption, meaning that a great part of tax revenue will be collected in the jurisdiction of the end consumer.
This policy change will have two main impacts. First, the base price for the consumption tax will increase from the factory price to the wholesale or retail price, which means that the Chinese government will collect more revenue from consumption tax. Second, the tax source will shift from the place of production to the place of consumption, resulting in a decrease in tax revenue for major production provinces (e.g. Shanghai, Guizhou, Yunnan, Hubei, Hunan) and an increase in tax revenue for provinces with large populations and large amounts of consumption (e.g. Guangdong, Shandong, Henan, Zhejiang, Sichuan).
“Allocating to local governments” means that the central government of China will no longer be the sole beneficiary of such consumption taxes; consumption tax revenue will now be shared with local governments. The northeastern, central, and western regions of China are likely to receive greater consumption tax than the eastern regions.
Sources:
1. The Paper, July 19, 2024
https://www.thepaper.cn/newsDetail_forward_28110425
2. Radio Free Asia, July 22, 2024
https://www.rfa.org/mandarin/yataibaodao/jingmao/lu-china-third-plenum-tax-policy-07222024155434.html