China proposes Local Surtax Law to consolidate existing levies

China's Ministry of Finance and the State Taxation Administration have released a draft of the ‘Local Surtax Law’ for public comment. The proposed legislation aims to consolidate three existing levies—the city maintenance and construction tax, the education surcharge, and the local education surcharge—into a single ‘local surtax.’

The draft stipulates that the new surtax will be calculated based on the value-added tax (VAT) and consumption tax paid by taxpayers. The proposed tax rate is set within a range of 11% to 13%. Under the new framework, provincial-level governments will have the authority to determine the specific applicable rate within this range, subject to approval by local people's congresses.

Proponents suggest the consolidation will simplify the tax system, reduce compliance costs for enterprises, and grant local governments greater fiscal autonomy to manage funds. However, critics and observers have raised concerns regarding the potential impact on different regions. While the government aims to keep the overall tax burden stable, some analysts note that the removal of differentiated rates based on urban or rural locations could lead to significant tax increases for businesses in towns and rural areas, where current combined rates are lower than the proposed minimum.