Increasing the use of property and income taxes in the People’s Republic of China won’t be popular, but it is necessary. Relying more on property and income tax will not only help the China government balance its budget but could smooth income inequality and limit unrestrained urban expansion.

As countries develop, they tend to keep balance between indirect taxes such as a levy on goods and services and direct taxes on incomes and property. That allows the government to use tax policy to meet social or fiscal goals while raising money to invest in a social safety net.

In China, direct taxes account for a much smaller percentage of total tax revenue than in member countries of the Organisation for Economic Co-operation and Development. In 2014, China raised 9.5% of its revenue through direct taxes, compared with 20.3% on average in OECD countries.

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About the authors

Jürgen Conrad headed the Asian Development Bank’s economics team in Beijing at the time this paper was written.

Jian Zhuang is an economist at ADB’s Resident Mission in Beijing.

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