China seeks to solve debt-ridden local authorities’ woes with water tax reform

China’s Finance Ministry announced Tuesday that it will extend interim water tax measures from 10 provinces to the entire country, starting Dec. 1, as part of efforts to provide more revenue to local authorities riddled with debt.

The measures aim to safeguard water resources, curb overexploitation of groundwater, alleviate the growing imbalance between supply and demand and refine the tax system, according to the ministry.

“All water resources tax revenues will be allocated to local governments to strengthen their autonomous financial resources, expand the local tax base, and appropriately expand local tax management authority,” the statement said.

The move is seen as largely symbolic, however, as the new increase for local authorities is estimated at only billions of yuan, far lower than their confirmed debt of 43.6 trillion yuan ($6.1 trillion) and the so-called hidden debt of $43.6 trillion. billions of yuan.

However, it marks a further intention to help restore local fiscal capacity, with other measures including an increase in central government transfer payments and other local taxes such as consumption tax.

Revenues from water resource charges are divided between central and local governments, with the central government receiving 10 percent of the revenue.