III. Working towards Successful Public Finance Management and Reform in 2016

1. Implementing the Budget Law

We will work faster to unveil the revised Implementation Regulations of the Budget Law at the earliest possible time so as to strengthen the institutional foundation for law-based public finance management. We will expand efforts to ensure that budgets and final accounts are released to the public and accelerate the establishment of a transparent budget system. We will move ahead with mid-term fiscal planning by formulating the 2017-2019 National Mid-Term Fiscal Plan, and strengthen its role in guiding the formulation of annual budgets and constraining the appropriation of funds. In advancing the reform of budget performance management across the board, we will strengthen the management of performance targets, promote performance evaluation of key expenditures such as major special funds, apply evaluation results more effectively, and increase the sense of responsibility and attention to efficiency of those responsible for the utilization of public funds. We will make further improvements to the operating mechanisms for collections and payments through the centralized treasury system. We will actively assist in efforts to review and regulate key items for which budgetary expenditures are linked to increases in government revenue or expenditures or to GDP growth. We will organize trials of preparing comprehensive government financial reports and promptly improve relevant systems. We will work to instill a keen awareness of the need to tighten our belts, make every cent count, and appropriate funds to where they can be used most efficiently. We will strictly observe relevant rules and regulations on refraining from extravagance, practice thrift and economy throughout all activities, reduce or cut spending whenever and wherever possible, and put a resolute stop to extravagance and waste. We will improve the system of institutions for managing expenditures for official purposes, deepen reform of the government purchase card system, and move ahead with the establishment of a permanent mechanism for ensuring strict austerity and fighting waste. We will tighten up financial discipline, strengthen supervision over government funds earmarked for improving the wellbeing of the people, and comprehensively review the security of government funds.

2. Accelerating fiscal and tax system reform

We will unveil guidelines on the reform of the division of administrative authority and spending responsibilities between the central and local governments, which will be aimed at appropriately increasing the administrative authority and spending responsibilities of the central government, delegating to local governments the responsibility for affairs which are suitable for them, and minimizing the number of items for which there is overlapping responsibility or shared management between the central and local governments. This reform will be first carried out in selected areas. We will improve and at an appropriate time roll out the transitional plan for sharing VAT revenue between the central and local governments, providing a way to best arouse the enthusiasm of both the central and local governments. We will improve the mechanism linking transfer payments to local governments with the number of people from rural areas who have become permanent urban residents within their jurisdiction. We will complete the reform to replace business tax with VAT in all sectors. We will make adjustments to the scope, affected activities, and rates of excise taxes. We will press ahead with personal income tax reform towards a system that is based on both adjusted gross income and specific types of incomes. We will extend ad valorem rates to all resource taxes and straighten out relevant administrative charges and government-managed funds. We will implement a plan for adjusting import duties on items coming into China via personal baggage or by post, and introduce standard policies on retail import taxes arising from cross-border e-commerce. We will implement fiscal and tax policies that encourage enterprise innovation, supporting enterprises in increasing their R&D investment and helping strengthen the principal position and guiding role of enterprise innovation. We will continue to assist in the legislative work on a tonnage tax and an environmental protection tax.

3. Executing budgets more effectively

First, we will strengthen the management of government revenue. We will ensure that taxes and fees are collected on the basis of law, that their collection is carried out in full, and that accounting schemes or other methods that seek to boost revenue only on paper are strictly prohibited. We will see that every policy related to tax and fee reductions is implemented and that any tax or fee not prescribed by law is not collected. We will closely follow, carefully analyze, and properly respond to developments in the government revenue situation.

Second, we will strengthen the management of budgetary expenditures. We will strictly enforce budgetary constraints and promptly approve the appropriation of government funds in strict accordance with the budgets approved by the NPC. We will carry out dynamic monitoring of budget execution to help ensure key organizations receiving large sums of government funds accelerate the execution of their budgets. We will urge those responsible for major programs to make thorough preparations so that work can begin on them the moment government funds are received.

Third, we will go further in putting idle funds to work. Funds carried forward for more than two years will be reviewed and taken back in accordance with regulations, while funds that have been allocated for two years or less will be reviewed and put to good use. We will redouble efforts to review idle funds in special fiscal accounts and extra-budgetary accounts of budget institutions. We will steadily carry out treasury cash management and conduct research on the establishment of a management system for the target balance of the treasury general account.

Fourth, we will speed up the development of internal controls. The internal control system will be established and implemented in all finance departments, and it will focus on budget management, fund distributions, and other areas. Under this system, the way power is exercised is determined on the basis of the matter in question, the way power is arranged is determined on the basis of the position in question, and the way power is delegated is determined on the basis of the level of government in question. We will strengthen regulation over internal procedures and establish mechanisms to effectively respond to risks and ensure greater accountability in order to improve administrative efficiency.

4. Innovating channels of government investment and spending

First, we will work to see that the PPP model becomes widespread. We will conduct research to assist legislative work related to the law on government and non-government capital cooperation. We will issue regulations on public finance management for PPP projects and create standard model contracts and industry-specific contracts. We will work to ensure that funds for supporting financing through PPP models operate smoothly so that more projects can come to fruition. We will help guarantee quality implementation of PPP projects by strictly regulating their operations.

Second, we will make effective use of all types of government investment funds. With regard to special funds retained in competitive fields with strong externalities, we will control the scale of their funding, ensure a focus on key areas, phase out administrative distribution in favor of market operating models such as fund management, gradually integrate these funds with financial capital, and use government capital to encourage the investment of private capital.