Editor’s Note: On March 5, Premier Li Qiang of the State Council delivered the Government Work Report at the Fourth Session of the 14th National People’s Congress. Regarding the continued deepening of reforms in key areas, the report outlined multiple tasks for fiscal and tax system reform. Among them, three core tax-related priorities—regulating tax-related behaviors in investment promotion, improving the local tax system, and advancing consumption tax reform—both align with past regulatory orientations and clarify the direction of tax collection, administration, and reform for 2026. These priorities carry strong guiding significance for the tax-related practices of local governments and market entities. This article interprets the three tax-related priorities by combining policy backgrounds and regulatory developments, providing practical guidance for enterprises to respond.

 

01 Regulating Tax-Related Behaviors in Investment Promotion: Implementation of List-Based Management and Upgraded Rectification of Irregular Preferences

The 2026 Government Work Report explicitly states: “Issue lists of encouraged and prohibited items for local government investment promotion, and standardize tax preferences and fiscal subsidy policies.” This requirement is not a new initiative but a continuation and upgrade of the special governance of irregular tax-related issues in investment promotion against the backdrop of building a unified national market in recent years. Its core is to draw clear compliance boundaries through positive and negative lists, addressing the long-standing pain point of vague legality and compliance in local investment promotion policies.

(I) Regulatory Orientation: Normalized Governance of Irregular Investment Promotion and Continued Tightening of Irregular Tax Preferences

In regulatory practice, the governance of irregular tax-related issues in investment promotion has become normalized and institutionalized. Previously, the Third Plenary Session of the 20th Central Committee of the Communist Party of China clearly proposed to “standardize laws and regulations on local investment promotion and strictly prohibit illegal and irregular policy preferences.” The Regulations on Fair Competition Review, which came into effect on August 1, 2024, further refined the requirements, stipulating that no preferential treatment such as tax incentives or fiscal awards and subsidies may be granted to specific operators without legal or administrative regulations as the basis or approval by the State Council. This means that the traditional investment promotion model relying solely on policy preferences is no longer sustainable and is gradually transitioning to compliance-based and market-oriented practices.

Since the implementation of the Regulations on Fair Competition Review, multiple departments and localities have acted in unison to promote the effective implementation of the cleanup of irregular fiscal awards and subsidies. In September 2024, the State Taxation Administration (STA) clearly stated at a series of press conferences themed “Promoting High-Quality Development” that it would resolutely resist irregular investment promotion behaviors that undermine the unity and fairness of the national market. It required tax authorities at all levels to establish leading groups for special governance, build a normalized monitoring indicator system, and strengthen early warning, verification of suspicious cases, and notification of typical cases. Prior to this, Tianjin, Lianshui in Jiangsu, Linxiang in Hunan, and other localities had taken the lead in launching special governance to investigate and rectify irregular tax-related investment promotion behaviors.

In the second half of 2024, rectification efforts continued to intensify. In October of that year, the State Council Executive Meeting deployed special rectification of irregular fiscal and tax rebates and awards to promote fair competition among enterprises. From the same period to December, Tonggu County, Jiangxi, Hunan, Rugao City, and other localities successively issued documents strictly prohibiting the irregular implementation of tax and fee preferences and fiscal awards and subsidies, sorting out and cleaning up existing investment promotion policies. Some localities publicized the cleanup results and abolished irregular policies. According to the December 2024 report of the National Audit Office, 34 provinces and cities have recovered 2.285 billion yuan from 2,561 enterprises in the form of irregularly enjoyed tax and fee preferences or supplementary tax payments.

In 2025, the special governance work continued to deepen. The Achievements of Six Measures of Tax Authorities in 2025 to Govern Irregular Tax-Related Issues in Investment Promotion and Serve the Construction of a Unified National Market shows that the STA pushed 389 verification problem clues throughout the year and promptly investigated and corrected irregular issues. The National Development and Reform Commission issued the Guidelines for the Construction of a Unified National Market (Trial), clarifying that localities shall not break through red lines to implement tax and fee preferences for investment promotion. Hebei, Heilongjiang, and other localities listed this governance work as a key annual tax task, continuously compressing the space for irregular investment promotion. The National Tax Work Conference on January 28, 2026, further emphasized “deeply rectifying irregular tax-related issues in investment promotion and the ‘invoice economy’,” indicating that rectification efforts for irregular investment promotion will continue to increase this year.

(II) The Draft for Soliciting Opinions on the Revision of the Tax Collection and Administration Law Reserves Space for Compliant Investment Promotion

Notably, the 2025 Draft for Soliciting Opinions on the Revision of the Tax Collection and Administration Law made an important adjustment to the wording of local tax preference policies. It revised the “one-size-fits-all” prohibition in the 2015 version—“No entity may formulate tax preference policies beyond the provisions of the unified national tax system except as stipulated by laws, administrative regulations, and the State Council”—to “Tax preference decisions made without authorization in violation of laws, administrative regulations, and provisions of the State Council shall be invalid.” This reflects a regulatory orientation that combines strict management with tolerance for errors. The author’s analysis holds that this adjustment does not mean relaxed regulation but reserves space for compliant investment promotion. Tax preference policies formulated by local governments may still be implemented as long as they do not violate laws, administrative regulations, and provisions of the State Council. For example, fiscal rebate policies linked to operational benefits such as production capacity rather than directly to tax payments provide relevant guidance for local investment promotion and enterprise compliance.

(III) Enterprise Compliance Response Strategies

Against the current tax regulatory backdrop, both the difficulty in applying fiscal awards and subsidies and tax-related risks for enterprises have increased. On the one hand, local fiscal award and subsidy policies will become more rigorous, and the cleanup of irregular policies will continue, raising the threshold for enterprises to enjoy preferences. On the other hand, multiple cases have emerged in practice where enterprises have had funds recovered, taxes supplemented, and fines imposed for irregularly enjoying awards and subsidies. Some have even been identified as issuing false invoices due to doubts about the authenticity of their businesses and transferred to criminal proceedings. Especially with the full promotion of fully digitalized electronic invoices and the realization of full-chain monitoring through big data, the difficulty of investigating and handling irregular tax-related behaviors has been greatly reduced, further highlighting potential risks.

In response, the following key points should be grasped in practice: First, local governments need to accelerate the introduction of positive and negative lists for investment promotion, clarify encouraged and prohibited tax-related behaviors, avoid government-enterprise disputes caused by vague policies, and establish a long-term mechanism for compliant investment promotion. Second, enterprises need to proactively review tax preferences and fiscal subsidies they have enjoyed or are currently enjoying, abandon the extensive business model of relying on irregular preferences and obtaining subsidies by issuing false invoices to inflate revenue, promptly investigate and rectify past non-compliant businesses, and adhere to the bottom line of compliant operation.

02 Improving the Local Tax System: Accelerated Tax Legislation and Upgraded Precision in Tax Collection and Administration

The 2026 Government Work Report proposes to “improve the local tax system and expand local tax sources.” This initiative is not only an important part of optimizing the fiscal and taxation system but also a key pillar for ensuring local fiscal stability and promoting high-quality development. China’s current local taxes include eight categories: house property tax, urban land use tax, deed tax, land appreciation tax, farmland occupation tax, vehicle and vessel tax, environmental protection tax, and tobacco leaf tax. Among them, house property tax, urban land use tax, and land appreciation tax have not yet been fully legislated, leading to issues such as inconsistent regional implementation rules, frequent tax disputes between tax authorities and enterprises, and insufficient tax certainty in collection and administration. Relevant reforms in 2026 will further standardize local tax collection and management.

(I) Land Appreciation Tax: Unified Collection Standards and Accelerated Legislative Process

As a vital tax for regulating the real estate market and participating in the distribution of land gains, land appreciation tax has long plagued real estate enterprises with inconsistent collection standards across regions, making it a high-incidence area for tax disputes. In practice, land appreciation tax liquidation remains the core focus of such disputes. For example, a wholly-owned subsidiary of a Shanghai-listed company overstated deductible items by 302 million yuan due to inaccurate aggregation and calculation during liquidation declaration for a real estate development project, resulting in the tax authority recovering 130 million yuan in land appreciation tax and late payment surcharges.

On January 1, 2026, the Announcement of the State Taxation Administration on Several Collection Standards for Land Appreciation Tax (State Taxation Administration Announcement No. 3 of 2026) came into effect. It unifies and standardizes core links including the connection between advance collection and liquidation, tax calculation basis, deductible items, and follow-up inventory management, effectively narrowing the discretionary space for grassroots law enforcement and providing clear operational guidelines for both tax collectors and taxpayers. Specifically:

On the connection between advance collection and liquidation, it defines “acceptance of the taxpayer’s liquidation declaration by the tax authority” as the cutoff point, stipulating that both the advance collection period and sales revenue aggregation period end on the last day of the tax period preceding the acceptance of the liquidation declaration. Subsequent sales are uniformly included in follow-up inventory management, and a supplementary declaration mechanism is established through supporting interpretation cases to mitigate risks of objective misdeclaration.

On deductible items, it sets prerequisites such as contract agreement and actual occurrence for “expenditures outside the red line.”

On follow-up inventory management, it clarifies the calculation standard for unit deductible item amounts and extends the tax exemption policy for ordinary standard residential housing to the follow-up inventory sales stage, filling a policy gap at the national level.

At the legislative level, the process of enacting the land appreciation tax is accelerating. In September 2025, a special research report by the Standing Committee of the National People’s Congress explicitly proposed to “accelerate land appreciation tax legislation,” setting the direction for legislative work during the 15th Five-Year Plan period. It is expected that the land appreciation tax will be formally enacted during this period, further enhancing tax certainty and reducing collection disputes.

For real estate development enterprises, the implementation of Announcement No. 3 of 2026 brings unified, stable, and predictable operational guidelines nationwide, but also means adjustments to local rules and implementation standards that enterprises previously relied on. Enterprises must proactively adapt to this policy change, closely follow detailed guidelines issued by local tax authorities where their projects are located, and seize this opportunity to systematically build a tax compliance management and risk prevention and control system covering the entire project lifecycle. During land appreciation tax liquidation, enterprises should communicate in advance with competent tax authorities on common disputed issues such as cost allocation methods, voluntarily submit relevant original documents, and resolve risks at the front end. If risks arise, they can seek professional support from tax lawyers to safeguard their legitimate rights and interests through legal channels.

(II) House Property Tax: Upgraded Digital Collection and Precise Tax Source Supervision

With the advancement of digitalization in tax collection and administration, supervision over house property tax has been continuously strengthened, and its importance as a local tax source has become increasingly prominent. In 2025, China’s house property tax revenue increased by 10.8% year-on-year, becoming an important pillar of local fiscal revenue. Currently, the core difficulty in house property tax collection lies in the complex business formats of leased commercial properties and strong concealment of tax sources. To address this issue, tax authorities in many regions have innovated collection models, building a precise supervision system through inter-departmental collaboration and big data empowerment to effectively solve collection challenges. For example, the Jiangyin Tax Bureau signed a memorandum of cooperation on tax and fee co-governance with housing construction, emergency management, and other departments, integrating 21 types of data including real estate registration, rental invoicing, and electricity and water consumption to establish a dynamically updated “leased house property tax source database.” It accurately identifies tax-related risks through 16 analysis dimensions such as abnormal rent rate and deviation in sublease premium. In one case, an enterprise inflated sublease links through related parties, renting properties to related parties at ultra-low rents and then having them sublease at high prices, reducing the tax calculation basis for house property tax in the initial rental link by over 40 million yuan annually. It was ultimately ordered to pay 4.276 million yuan in back house property tax, serving as a warning that enterprises cannot ignore tax issues in sublease links.

Against the backdrop of major changes in the supply-demand relationship of the real estate market, enterprises must ensure tax compliance in both transaction and holding links, with particular attention to house property tax and urban land use tax declarations. A listed company in Inner Mongolia announced that its subsidiary, upon self-inspection and verification of house property tax declaration status as required by local tax authorities, needed to pay back house property tax and late payment surcharges totaling 111.0597 million yuan for the period from December 2018 to June 2024, which was expected to reduce the 2024 net profit attributable to shareholders of the listed company by approximately 80.69 million yuan. This fully demonstrates that non-compliance with house property tax regulations can lead to significant economic losses.

In summary, with the upgraded digitalization of tax collection and administration, tax authorities’ supervision over house property tax will become more precise, making tax-related risks more visible. Enterprises should clarify their house property tax obligations, truthfully disclose property rental information, pay attention to the rationality of rent pricing, avoid tax evasion through related-party transactions or inflated sublease links, actively cooperate with tax authorities in tax source verification, promptly rectify non-compliant issues, and prevent risks such as back tax payments and late payment surcharges.

03 Consumption Tax Reform: Optimization of Scope and Tax Rates, Advancement of Backward Shift of Taxation Links

The 2026 Government Work Report clearly puts forward that we should "adjust and optimize the scope and tax rates of consumption tax, and promote the backward shift of taxation links for some taxable items". This reform direction continues the deployment of the Third Plenary Session of the 20th Central Committee of the Communist Party of China to "promote the backward shift of consumption tax taxation links and steadily assign the tax revenue to local governments". When arranging annual tasks in the Government Work Report of March 2025, it was also re-emphasized that we should "accelerate the backward shift of consumption tax taxation links for some taxable items and assign the tax revenue to local governments to increase local independent financial resources". Continuous deployments at the central level have continuously sent signals that consumption tax reform is being accelerated.

(I) Core of the Reform: Optimizing the Scope, Tax Rates and Links of Consumption Tax

From the perspective of the core of the reform, this consumption tax reform mainly includes three contents: first, optimization of the taxation scope, adjusting taxable items in combination with national economic development and changes in consumption structure, focusing on high energy-consuming, high-pollution and high-end luxury consumption; second, adjustment of tax rates, optimizing the tax rate structure according to regulatory needs, balancing fiscal revenue and consumption guidance; third, backward shift of taxation links, shifting the taxation of some items from production and import links to wholesale and retail links, and steadily assigning the tax revenue to local governments to realize the connection between tax sources and consumption places. As the third largest tax category in China, consumption tax revenue mainly comes from the production link at present. Among them, four major items, namely tobacco, alcohol, refined oil products and passenger cars, contribute more than 90% of consumption tax revenue, so the reform naturally focuses on these key items. The core of this reform lies in "backward shift" and "downward assignment". The so-called "backward shift" refers to shifting the taxation link from the production end to the wholesale or retail link; "downward assignment" means that this part of tax revenue will be assigned to local governments where consumption occurs.

(II) Key Area: Strengthened Tax Supervision in the Refined Oil Products Industry

As a key area of consumption tax collection and administration, the refined oil products industry has taken the lead in strengthening supervision and become an important pilot direction of the reform. From April to July 2024, the First Central Inspection Group conducted a routine inspection of the Party Committee of the State Taxation Administration. The rectification progress report issued by the State Taxation Administration in September 2025 showed that tax supervision in the refined oil products industry was listed as a key rectification item. The State Taxation Administration has taken three measures to continuously strengthen tax supervision in the refined oil products industry: first, issuing three policy standards for refined oil products consumption tax; second, studying and revising the notes on the scope of refined oil products consumption tax collection; third, formulating and issuing the Interim Measures for the Administration of Testing of Tax-Related Refined Oil Products. Against this background, the notes on the scope of refined oil products consumption tax collection will be further improved, providing a clearer basis for the collection and administration of the refined oil products industry.

The continuous intensification of supervision has also laid a foundation for the reform of the backward shift of consumption tax. The 2026 National Tax Work Conference further proposed to seriously investigate and punish tax evasion and illegal acts in the refined oil products sector. Combined with the trend of consumption tax reform, the pilot of shifting refined oil products consumption tax to the retail link is expected to take the lead, but the full implementation in the short term still faces corresponding challenges. First, tax sources at the retail link are extremely scattered, and more than 120,000 gas stations nationwide will become taxpayers. The incomplete accounting of some small gas stations will greatly increase the cost of collection and administration; second, the production of refined oil products is concentrated in a few provinces, and the backward shift of taxation links will lead to the shrinkage of fiscal revenue in production areas, and transitional mechanisms are needed to balance inter-regional fiscal relations. From the perspective of industry impact, the backward shift of consumption tax taxation links has significantly different impacts on different entities. For refining and chemical enterprises, they will no longer bear the obligation of consumption tax payment at the production link, which will significantly ease the pressure of capital occupation and improve cash flow; for wholesale and retail enterprises, they will become direct taxpayers of consumption tax, which will increase the cost of compliance management but achieve fair competition; for local governments, tax sources in consumption areas will be further enriched, helping to expand local tax sources.

Under this reform orientation, the taxpayers of consumption tax for corresponding items will be changed from producers and importers to a wider range of distributors and retailers, and the relevant entities need to make responses in advance. First, closely follow the policy pilot dynamics and focus on tracking the reform progress of key items such as refined oil products; second, comprehensively assess the impact of the reform on their own business models, pricing strategies, cash flow and tax compliance systems, and take the initiative to adjust business models; third, strengthen compliance management, especially for refined oil products enterprises, focus on preventing risks such as tax evasion and false invoicing, and standardize invoice issuance and tax declaration.

04 Conclusion

Combined with the 2026 policy dynamics and relevant practical experience, relevant enterprises are advised to make good responses. First, comprehensively check the tax incentives and fiscal subsidies they have enjoyed and are currently enjoying, promptly rectify non-compliant acts, and completely abandon the extensive business model of relying on illegal incentives and inflating revenue through false invoicing; second, focus on policy changes related to local taxes and consumption tax. In particular, real estate enterprises need to standardize the liquidation of land appreciation tax and the declaration of property tax, and refined oil products enterprises need to adapt to the trend of consumption tax supervision and reform and improve the compliance system in a targeted manner; third, strengthen the awareness of compliance management, leverage professional forces such as tax lawyers to prevent tax-related risks in advance, properly handle tax-enterprise disputes, and reduce economic losses.

In 2026, tax collection and administration will continue to upgrade to precision and digitalization, and the investigation and punishment of illegal tax-related acts will be further intensified. All entities need to take the initiative to adapt to regulatory changes and adhere to the bottom line of compliance. The Report on the Work of the Standing Committee of the National People's Congress, which is submitted to the Fourth Session of the 14th National People's Congress for deliberation today, reveals new highlights of national legislation in 2026, and clearly states that laws such as the Tax Collection and Administration Law and the Enterprise Bankruptcy Law will be revised this year. Tax-related enterprises need to closely follow the new legislative dynamics, predict policy changes in advance and make full preparations.