Reform of China’s taxation system: from embedment in the economy to embedment in society

Abstract

To match national development goals and increase in the tax base, the government must embed a taxation system in economic and social contexts. Since the founding of the People's Republic of China, the development of taxation can be divided into three stages: one that is embedded in danwei, one that is embedded in enterprises, and one that is embedded in society. The corresponding national development goals include stimulating economic growth, promoting coordinated economic and social development, and propelling state governance. As the tax base in China shifts from production to redistribution and wealth accumulation in the circulation of the national income, the taxation system will gradually shift from embedment in the economy to embedment in society, posing new challenges to taxation system reform. Future reform should deepen the extent to which taxation is embedded in society while keeping taxation embedded in a broad economic base. This will help to achieve the goal of building a “consensually strong state.”