'Local additional tax' reform is on the agenda: what's new and how will it be implemented?

What the proposal would do

It has been reported that the central government's recent "Report on 2025 Central and Local Budget Execution and the 2026 Central and Local Budget Draft" (《关于2025年中央和地方预算执行情况与2026年中央和地方预算草案的报告》) explicitly calls for pushing forward reform of "local additional taxes" (地方附加税). In practice this means consolidating long‑standing surcharges — the urban maintenance and construction tax, the education surcharge, and the local education surcharge — into a single, rule‑based local additional tax that is levied on top of existing taxes such as VAT and consumption tax. Is this a new tax? Not exactly: experts stress it is a re‑packaging and legal standardization of charges that already attach to the same tax base, but formalizing them will make the burden and collection rules clearer.

Why now — revenue, autonomy and the fiscal gap

China's local governments face mounting fiscal pressure after the phasing‑out of business tax and amid weaker revenue growth. It has been reported that Beijing sees the reform as a way to expand local tax bases and provide steadier, own‑source revenues for local budgets while preserving central–local fiscal balance. Wang Yongjun, director of the Government Budget Research Center at the Central University of Finance and Economics (中央财经大学), said the move is intended to help localities “generate their own blood” — boosting fiscal autonomy without creating wholly separate local taxes. Yuekai Securities (粤开证券) chief economist Luo Zhiheng (罗志恒) said a unified surcharge could also simplify the tax system and stabilize local receipts. External pressures on growth and trade have also weighed on tax intake, making such reforms more urgent.

Implementation details and the political economy of perception

Design choices will matter. According to the experts interviewed, local governments would levy the surcharge as a percentage of already‑paid VAT or consumption tax — for example, a fixed extra percentage on every 100 yuan of VAT paid — and, importantly, may be authorized within a central ceiling to set local rates. That flexibility aims to balance stable revenues with centrally coordinated fairness. But risks remain. Sun Yat‑sen University Lingnan College (中山大学岭南学院) economist Lin Jiang (林江) warns that if normalized, the consolidated surcharge could be perceived by businesses and households as an additional tax, affecting investment and consumption expectations. At the same time, bringing scattered charges into a statutory framework could improve transparency and reduce arbitrary levies. Final rules have yet to be issued; proponents say the reform will likely be net positive only if implementation keeps tax burdens controllable, enforcement manageable, and public communication clear.