The People’s Republic of China’s Tax Reform in the Digital Economy: Progress and Challenges

Abstract

The rapid integration of the People’s Republic of China (PRC) into the global supply chain requires the PRC to work with other countries to form a consensus-based international taxation system. A primary concern is the allocation of tax rights among the different countries participating in the global value chain. At the same time, the PRC’s increasingly digitalized economy also poses serious challenges to its evolving tax system. It is becoming increasingly difficult to identify parties to a transaction with tax obligations, and harder still to collect taxes from cross-border e-commerce based on the traditional territoriality principle. Since the 1980s, the PRC has made remarkable progress in reforming its fiscal and tax systems. However, much remains to be done. Internationally, consultations on addressing the tax challenges of the digitalization of the economy are ongoing, and similar deliberations and discussions are starting within the PRC. This chapter analyzes the challenges facing the PRC given the emerging international consensus and suggests ways forward.