On October 16, 2024, China's Ministry of Finance announced the nationwide expansion of the Water Tax Interim Measures, set to take effect on December 1, 2024. This reform aims to provide additional revenue streams for debt-ridden local authorities, which currently face confirmed debts totaling 43.6 trillion yuan (approximately US$6.1 trillion). The new tax system is designed not only to bolster local finances but also to safeguard water resources and curb the over-exploitation of groundwater. Under the new measures, income generated from water resource fees will be shared, with 10% allocated to the central government [b184b4ba].
Hebei province, which has been part of the pilot program since 2016, has reported a 40% reduction in water consumption per 10,000 yuan of GDP, showcasing the potential effectiveness of these reforms. However, local fiscal revenue has only seen a marginal increase of 0.4%, reaching 8.24 trillion yuan in the first eight months of 2024. In contrast, income from land sales has dropped significantly, declining by 25.4% year on year to 2.02 trillion yuan [b184b4ba].
This initiative comes as part of a broader strategy to address the financial challenges faced by local governments in China. The expansion of the water tax is expected to provide a much-needed financial boost while promoting sustainable water management practices across the country [b184b4ba].
In conjunction with the water tax reforms, China's fiscal revenue has recently shown signs of recovery. In October 2024, fiscal revenue rose by 5.5% year on year, with tax revenue increasing by 1.8% to 1.907 trillion yuan (approximately US$263 billion). Non-tax revenue surged by 40%, and consumption tax jumped by 10.2%, reflecting the impact of stimulus policies initiated in September 2024 [e174f860].
The government also announced an additional bond quota of 6 trillion yuan (US$829 billion) to support these fiscal measures. Retail sales grew by 4.8%, and fiscal expenditure accelerated by 10.4% to 1.97 trillion yuan, indicating a concerted effort to stimulate the economy as it targets an annual growth rate of around 5% [e174f860].
As Vietnam and India also navigate their own tax and revenue challenges, the reforms in China highlight the ongoing global efforts to enhance fiscal policies and address local government debts while promoting sustainable practices [3ea1bd3f][ff76ef2e].