With Bangladesh seeking structural solutions to broaden its narrow domestic revenue base, the Policy Research Institute of Bangladesh (PRI) gathered leading fiscal policymakers, economic analysts, and former revenue officials to analyze China's tax trajectory.
Delivering a special lecture titled “Taxation System and Reform in China: Lessons for Revenue Mobilization in Bangladesh,” Prof Ping Zhang, vice dean of the School of International Relations and Public Affairs at Fudan University, detailed how China leveraged indirect taxation and local resource mobilization to finance modern infrastructure development.
Key highlights of the reform discourse
- China’s Indirect Tax Dominance: Indirect taxes generate 65% of total tax revenues in China, led heavily by Value Added Tax (VAT). Corporate Income Tax (CIT) contributes 26%, while Personal Income Tax (PIT) accounts for 9%.
- The 1994 Tax-Sharing Shift: China’s 1993–1994 Tax-Sharing System reform abruptly expanded the central government’s share of national revenue from ~20% to ~50%, forcing local authorities to seek structured central transfers and independent funding streams.
- Deploying 'Land Finance': Local governments in China bridged operational revenue shortfalls by commercializing land-use rights, turning land revenues into the primary engine for massive urban infrastructure expansion.
- Three-Point Blueprint for Bangladesh: Prof Zhang urged Bangladesh to clearly delineate expenditure and revenue roles across government tiers, establish conditional revenue-sharing structures for property receipts, and modernize local municipal tax collection through updated property valuations.
China's Fiscal Blueprint & Application Model
China's Revenue Matrix Recommendations for Bangladesh
┌─────────────────────────────┐ ┌───────────────────────────────┐
│ Indirect Taxes (VAT): 65% │ │ Clear Tiered Responsibilities │
│ Corporate Income Tax: 26% │ ──────────────► │ Conditional Property Transfers│
│ Personal Income Tax: 9% │ │ Modernized Property Valuations│
└─────────────────────────────┘ └───────────────────────────────┘
Fiscal Dimension | China's Historic Mechanism | Proposed Adaptations for Bangladesh |
Primary Revenue Driver | Consumption-focused indirect taxes (VAT accounting for the bulk of collection) | Overhaul municipal tax networks while securing steady indirect tax compliance. |
Intergovernmental Sharing | 1994 Tax-Sharing reform increased central share from ~20% to ~50% | Define distinct revenue and expenditure assignments across central and local government tiers. |
Infrastructure Funding | "Land Finance" model leveraging municipal land-use rights | Adopt conditional revenue-sharing rules for property receipts to fund local development. |
Local Revenue Systems | High-value land transfers and central fiscal equalization | Modernize municipal property valuation methodologies and tighten local enforcement. |
Key lessons from China's tax evolution
The lecture outlined two pivotal milestones in China's economic transformation.
The first was the 1984–1985 profit-to-tax reform for State-Owned Enterprises (SOEs), which transformed state profit remittances into a standardized corporate tax framework.
The second was the landmark 1993–1994 Tax-Sharing System reform. By centralizing half of all national tax collections, the central government secured national fiscal control.
However, this created a fiscal deficit at local government levels, directly giving rise to China's "land finance" model—a mechanism where municipal authorities monetized land-use rights to independently finance urban development.
"China’s fiscal trajectory shows a heavy reliance on indirect taxation, with VAT acting as the dominant revenue pillar," explained Prof Ping Zhang of Fudan University.
"The shift toward centralized tax sharing forced municipal authorities to innovate through land finance. For Bangladesh to scale its revenue base, it must modernize local property valuation, enforce strict property tax collections, and establish clear fiscal boundaries between central and regional administration tiers."
Based on the seminar's outcomes, economic experts and policy panels identified three immediate priorities to upgrade Bangladesh's revenue framework:
- Formally separate taxation rights and public spending obligations between central ministries and local government bodies.
- Link central fiscal allocations to local government performance in capturing property-related revenues.
- Overhaul outdated local property assessment registries using automated valuation techniques to eliminate tax evasion at the urban level
