Local govt's share of VAT may rise

China might raise the local governments' share of value-added tax to boost their fiscal capacity, a newspaper reported.

The central and local government's share of VAT, China's largest tax, will be adjusted to 50:50 from 75:25, Xinhua-affiliated Economic Information Daily reported on Wednesday, citing a document of the Finance Ministry that is soliciting opinions internally.

Starting in 2012, China's reform to replace business tax with VAT, in order to avoid repeated taxation and ease tax burden, has expanded to all service sectors except for four remaining bulwarks: property, construction, finance, and consumer services. Premier Li Keqiang last month promised to expand the reform to the remaining sectors, effective from May 1.

If implemented, the business tax, once the largest tax source for local governments, will vanish, and that has raised concern for local governments' revenue. Local officials have argued for months that its share of the VAT should be raised to make up the shortfall.

VAT revenue last year totaled 3.11 trillion yuan ($480 billion). If this is the figure for this year and local government's share was raised to 50 percent from 25 percent, it would bring 777.5 billion yuan additional revenue for local government.

An expert close with the ministry, who declined to be identified, told China Daily that the report is very likely to be true.