|Abstract: ||Since the initiation of reform and opening-up policies, mainland China’s enterprises have been asked to pay taxes instead of continuing to deliver a portion of their profits to the state. At the same time, local governments have also increased their extrabudgetary funds through taxation.|
In the process of instituting the taxation system, the central government has kept most of the financial power in its own hands, completely deviating from the new economic policy of allowing local governments to enjoy greater autonomy. On the other hand, local governments have taken advantage of the new taxation system’s loopholes to transfer part of their tax revenue into extrabudgetary funds and using these funds to support state-owned enterprises in their own areas. If this phenomenon develops unchecked, the central government will have difficulties in exercising effective financial control, although its tax distribution system, which was implemented at the beginning of the 1990s, aims to consolidate its financial power.