Why does the Central Economic Work Conference emphasize structural tax cuts?

The Central Economic Work Conference emphasized the continuation of a proactive fiscal policy and a prudent monetary policy, highlighting the importance of countercyclical and structural adjustments. Implementing an active fiscal policy requires refining structural tax reduction measures in line with ongoing tax reforms. Local governments are urged to adopt strict financial discipline, control general spending, and allocate resources more effectively. The conference also highlighted the integration of tax reform into the broader framework of structural tax cuts. This reflects a clear regulatory intent, focusing on reducing the tax burden to stimulate economic growth. The reform of "business tax to VAT" is a key example, aiming to simplify the tax system and promote efficiency. Why has the new leadership placed such emphasis on this reform? It's because tax reform represents one of the most feasible, low-cost, and high-impact initiatives in the current context. First, a new round of fiscal and tax reform is seen as a critical and relatively easy-to-implement initiative. There is broad public support for reform, and the consensus around its benefits makes it easier to push forward. As a result, resistance to change is minimal compared to other areas of reform. Second, the leadership has sent strong signals about continuing the reform agenda. Tax system reform not only supports macroeconomic stability but also drives broader institutional changes. Key elements like budgetary democracy and legal oversight of taxation mean that government spending and revenue collection must be transparent and subject to public scrutiny. This marks a shift toward a more accountable and legally grounded governance model. Third, tax reform is closely linked to the redistribution of financial powers between the central and local governments. For instance, shifting business tax into a shared tax structure affects how local authorities collect and manage revenue. This necessitates a redefinition of fiscal responsibilities and power distribution. Finally, the reform reflects a pragmatic approach to economic development. The 18th National Congress stressed the need for structural adjustment in the economy, emphasizing the real economy and job creation. The shift from business tax to value-added tax is a concrete step to support the service sector and reduce corporate burdens, aligning with long-term economic goals. In summary, the new leadership’s focus on tax reform is not just an economic move—it is a strategic and political step toward greater transparency, fairness, and sustainable growth.

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