Rachel Farmer

China has taken a significant step in modernizing and standardizing its tax policy. On January 1, the Value-Added Tax (VAT) Law came into effect after being passed by the National People’s Congress in December 2024. VAT, a consumption tax based on the value added to goods and services at each stage of production and distribution, is China’s largest single source of tax revenue and accounted for 39% of total national revenue in 2025.

According to official government data, China’s economy hit its target of 5% growth in 2025, but only just. Unofficial estimates paint a bleaker picture, with the Rhodium Group concluding that China’s real GDP grew by just 2.5% to 3% in 2025, largely due to persistent deflation and a sharp decline in investment.

Last month, the Chinese Communist Party’s 20th Central Committee concluded its fourth plenary session, during which it adopted the Central Committee’s proposal for formulating the 15th five-year plan covering 2026 to 2030. Beijing has acknowledged a growing pressure to maintain social stability and advance reforms amid more volatile geopolitical conditions. As such, the proposal points to an enhanced role for indigenous innovation, industrial upgrading, and domestic consumption as key drivers of secure and sustainable growth.

China’s economy has grown faster than expected this year, but growth in tax receipts has fallen behind. In response, Beijing is turning to tax reform as a cornerstone of fiscal stabilization, combining short-term measures to raise revenue from existing sources with longer-term efforts to standardize its tax regime.

In a statement released on June 6, the Shanghai Stock Exchange pledged to guide listed companies to raise the share and frequency of dividend distribution, as well as to make better use of tools such as share buybacks, M&As, and investor engagement. The SSE is hoping the moves will boost confidence in Chinese assets and make the domestic capital market more attractive for long-term investment.