China to gradually implement consumption tax reform, minister says

BEIJING (Reuters) -China will gradually implement consumption tax reform through different items and standardise management of local governments' non-tax revenues, Vice Finance Minister Wang Dongwei said at a press conference in Beijing on Wednesday.

Local administrations will gradually be allowed to retain more of the consumption tax, which is currently collected by the central government and accounts for almost a tenth of China's total tax revenues, according to a Communist Party agenda-setting meeting this month known as a plenum.

China currently collects consumption taxes based on the value of a good when it is produced but there are plans to widen the assessment of the tax to include the value at its consumption.

Wang said in his remarks to media outlining government steps to enact policy made at the plenum that "we are considering moving the consumption tax collection stage backwards".

"We will consider the division of central and local government revenues and their tax collection and administration capabilities, and steadily implement the reform by different product items step-by-step, in a bid to expand local governments' revenue sources and guide them to improve consumption environment," said Wang.

China is attempting to overhaul its tax regime, under which the central government gets most revenues but saddles local authorities with most expenditures, as municipalities are making less income form land sales amid a prolonged property crisis.

Policymakers also hope to ease concerns over municipal debt of more than $13 trillion that poses risks to the financial system.

Official data on Wednesday showed China's manufacturing activity in July shrank for a third month, highlighting the still sluggish domestic demand.

At a key policy meeting on economy held on Tuesday, Chinese leaders signalled the stimulus measures needed to reach this year's economic growth target will be directed at consumers.

The state planner and finance ministry said last week some funds raised through this year's ultra-long sovereign bonds issuance would be shifted towards supporting a consumer goods trade-in scheme.

(Reporting by Kevin Yao and Ellen Zhang; Editing by Tom Hogue and Christian Schmollinger)