China’s new 5-year plan targets tax reform as local governments face fiscal strain

With local governments in China struggling to replenish their treasuries while facing growing public service obligations, Beijing is setting its sights on securing more tax revenue as a major reform goal for 2026 and the four years beyond.Compared with the previous five-year plan period’s emphasis on “tax and fee cuts”, the language in the draft of the full 15th five-year plan – released on Thursday – emphasised “maintaining a reasonable macro tax burden”.The document also pledged to “appropriately strengthen central government authority and increase the proportion of central fiscal expenditures, while reducing central fiscal responsibilities delegated to local governments for implementation”.Revamping China’s tax system has become a delicate balancing act for policymakers, who face the difficulty of raising sufficient revenue without imposing an excessive burden on businesses – a challenge made all the greater by an economic slowdown, a prolonged property downturn and persistent deflationary pressures.Authorities have pinned hopes on tax reform to help address major imbalances in the world’s second-largest economy, including industrial overcapacity, weak consumption and a persistent wealth gap.The government work report, delivered by Premier Li Qiang at the opening ceremony of the National People’s Congress on Thursday, listed “improving the local tax system” and “expanding local tax sources” as policy goals this year.The 2026 budget report, published by the Ministry of Finance on Thursday, also pledged to strengthen the overall planning of funds to better meet local needs.