5. Fiscal and taxation reforms progressed steadily.

The system of transfer payments was further improved. The central government's fiscal transfer payments to local governments, mainly in the central and western regions, came to 709.29 billion yuan in 2007, an increase of 193.32 billion yuan. This figure includes 250.5 billion yuan in general transfer payments, which were used to promote a more balanced financial distribution among different regions. We improved the methods for calculating fiscal transfer payments and introduced a transfer payment system to assist cities that had depended on resources that are now exhausted. We adjusted and improved the "three rewards and one subsidy" policy and increased the rewards to local governments for balancing financial distributions among counties and ensuring key expenditures. The central government allocated 34 billion yuan for rewards and subsidies, an increase of 10.5 billion yuan. This helped to further ease the financial difficulties of both counties and townships. The proportion of county-level expenditures to total local expenditures throughout the country increased by three percentage points compared to the figure before the policy was adopted. We reviewed special transfer payments and cut their number from 213 to 174. The State Council has reported on standardizing transfer payments to the Standing Committee of the Tenth NPC.

Important headway was made in taxation reform. The corporate income tax systems for domestic and overseas-funded enterprises were reformed, and the new Law on Corporate Income Tax and the regulations on implementing it went into effect on January 1, 2008. Collection of taxes on urban land use and vehicle and boat operation is going smoothly after the revision of related regulations, and the relevant taxation policies were also further improved. On the basis of the VAT reform trials in northeast China, the reform was extended to eight industries in 26 old industrial cities in the central region. Progress in resource tax reform entered a new stage.

Reform of the budgetary system gradually made progress. The budgetary system for managing state capital was put into trial operation. The new classification system for government revenue and expenditures was widely adopted in compiling budgets and final accounts and implementing budgets. The reform requiring all central and local government departments to prepare their budgets was deepened, and progress was made in improving the system of standards for expenditures. Trials to set allowable limits for in-kind expenditures and to evaluate performance of budgetary expenditures were conducted. The reform to set up a centralized treasury payment system was carried out in all central government departments, their subsidiary bodies responsible for preparing their own budgets, governments of provincial-level localities and cities specially designated in the state plan, and bodies of most cities and counties that prepare their own budgets. This reduced the steps in the transfer of funds. Trials were conducted on the computerized horizontal integration of the bank accounts for the tax revenue of finance departments and tax departments with the treasury in more than ten provinces. Reform of the collection and transfer of non-tax revenue was carried out in approximately 50 central government departments and nearly all localities, ensuring that revenue finds its way to the state treasury in a timely manner. We improved the government procurement system and deepened the reform of separating revenue from expenditures. Steady progress was made in standardizing the distribution of income to civil servants. Support for corporate and financial reform was also strengthened.

Overall rural reform was deepened. This reform was carried out to varying degrees in 31 provincial-level localities across the country. The tax and fee reform in state-owned farms was promoted, saving 18.56 million farm workers 6.2 billion yuan, or 332 yuan per person. Six billion yuan was appropriated from the central budget to pay off rural debts that were incurred in making nine-year compulsory education universal. Local governments also actively took steps to raise financial resources for this purpose. The overall reform in large lake regions to ease the financial burden of farmers there was steadily advanced, saving 26.16 million farmers 2.3 billion yuan, or 89 yuan per person.