Structure and functioning of China's tax system

China's tax system is highly important and has undergone significant changes in the past. The country has successfully built a functioning tax system, raising about 23-24% of its GDP in tax revenue a decade ago. However, the tax-to-GDP ratio has been rapidly declining in recent years and currently stands below 14%. This decline can be attributed to several factors, including major tax cuts in value-added tax, corporate income tax, and personal income tax. The motivation behind these tax cuts is rooted in concerns about slowing economic growth and a desire to stimulate the economy. It is worth noting that while the tax system in China is less rule-based compared to Western countries, it operates on a decentralized model with tax bureaus at the grassroots level. This allows for close monitoring of taxpayers and the formation of rough estimates of what they owe. The Chinese tax administrators have a high tolerance for inaccurate tax returns, placing more emphasis on taxpayers' capacity to pay rather than strict compliance with the law.