Shanghai will expand tax reform and improve fiscal structure to encourage healthy economic development even as the mayor warns the city faces problems in raising fiscal revenue this year.

The city will prioritize investment in innovation and infrastructure, boosting consumption, and supporting public welfare in its fiscal expenditure this year, Mayor Yang Xiong said at a municipality conference yesterday.

As part of a continued effort to replace the business tax, Shanghai will also expand the value-added-tax trial for some service firms this year to boost the service sector and streamline the tax system, he said.

The trial, which started on January 1, 2012, has chopped off a total of 4.5 billion yuan in tax for more than 130,000 participating companies in the first half of last year, according to latest data released by the Shanghai Statistics Bureau in August.

But Yang cautioned that Shanghai should be prepared to face hardships over the city's fiscal revenue this year.

"The financial and taxation departments must realize the current economic situation and be fully prepared for hardships ahead," Yang said. "We should enhance fiscal management while maintaining steady revenue growth."

Shanghai's fiscal revenue rose 9.2 percent last year from 2011, less than half the pace of a 19.3-percent growth in 2011, on slower economic growth and tax cutting measures, official data showed in January.

Also yesterday, Shanghai's auditing office said it investigated 1,042 cases last year and uncovered irregularities amounting to 3.1 billion yuan. The office also recovered 607 million yuan in wasted funds, officials said.