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As China's economy undergoes a digital and green transformation, the tax system also urgently needs to be reformed.

In the recently released "Decision of the CPC Central Committee on Further Comprehensively Deepening Reforms and Promoting Chinese-style Modernization" (hereinafter referred to as the "Decision"), when deploying the deepening of fiscal and taxation reforms, the first thing to improve the tax system is "studying a tax system that is compatible with new business forms." Han Wenxiu, deputy director of the Central Finance Office in charge of daily work, interpreted this as the goal of promoting and regulating digital and green development.

Why did the central government propose to study the tax system that is compatible with the new business forms at this time? Where is the incompatibility between the current tax system and the new business forms reflected? What will be the direction of the tax system change in the future? Will a digital service tax be levied in the future?

Tax system elements and other factors are not suitable for new business forms

At present, China's digital economy accounts for more than 40% of its GDP. Under the guidance of high-quality economic development, the digitalization and greening transformation is unstoppable, and the proportion of digital economy will further increase. However, the reform of the current tax system obviously lags behind the development of new business forms in the digital economy era, including the fact that tax system elements are not adapted to new business forms.

Xie Bofeng, deputy director of the Digital Taxation Research Institute of Renmin University of China, told Caixin that the clarification and application of tax system elements such as taxable objects and tax rates are the basic conditions for the smooth operation of a tax type. In the context of the digital economy, digital technology has triggered a series of changes in production methods, business models, chain systems, organizational forms, etc., while the current tax system element regulations for various tax types are mainly designed based on the operating model and operating rules of the industrial economy, and cannot encompass or fully apply to the new economic form. In practice, there is a lack of corresponding tax law provisions, or the current tax law provisions are difficult to apply.