On 19 and 20 July 2023, the Sino-German Legal Cooperation Program of GIZ held a workshop on the topic of “non-tax revenue” on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) at the “German Center” in Beijing. The hybrid event with the virtual participation of experts from Germany was jointly organized with the Budget Affairs Commission of the Standing Committee of the National People’s Congress of the People’s Republic of China, which is usually in charge of financial and budgetary legislation. The Chinese interest in the topic is in part owed to the fact that there is no uniform legal basis for non-tax revenue in China, which is instead regulated by numerous, sometimes contradictory, regulations of the State Council. The National People’s Congress has therefore declared legislation on the subject a reform priority.
The workshop was opened by the head of GIZ’s legal program, Dr. Marco Haase, on the German side, and on the Chinese side by the head of the legal department of the Budget Affairs Commission, Mr. Wang Wenyue. The opening remarks reflected mutual joy at meeting in person for the first time after years of shifting to virtual exchange formats due to the pandemic. Mr. Wang Wenyue also expressed his appreciation for the previous cooperation with GIZ: Since 2003, it has been deepened in area of tax legislation through various workshops and dialogue formats and the transmission of German legal solutions is already having a positive effect on the quality of Chinese legislation. The long-standing tradition of including legal solutions and implementation experiences from Germany in legal reforms has thus proven its worth.
In his introductory speech, Mr. Su Dacheng, head of department at the legal department at BAC, emphasized the outstanding importance of non-tax revenues in the financing of public services in China: At €1.6 trillion, their share in 2022 was around 40% of all government revenues. In addition to the sale of land-use rights, management fees and so-called earmarked government funds [e. g. B. the Development Fund for Renewable Energy] accounts for the largest share thereof. He also gave the participants an overview of the current legal basis for important non-tax revenues in China. However, since these are currently largely based on stand-alone regulations of the Council of State, some of which were outdated and contradictory, the work on a basic set of rules was currently a focus of the work at BAC Last but not least, he hoped that the workshop would provide food for thought on how the rule of law standards and legal certainty in the field could be strengthened in China.
The focus of the first day of the event was an introductory lecture by Prof. Dr. Gisela Färber, professor em. at the German University for Administrative Sciences Speyer. Not only did it become clear that the non-tax revenues in the “tax state” Germany, at just under 4%, are of comparatively minor fiscal importance. The reason for this also emerged from the introduction to the theoretical foundations of state revenue: The German state finances itself predominantly according to the “ability to pay principle”, which excludes the possibility of financing through non-tax revenue. The latter is only possible in Germany in exceptional cases if either (a) the state itself becomes a market-actor, or (b) the exclusion principle (i.e. the exclusion of non-payers from certain services) is applicable. Whereas for usage fees the amount depends on the type and extent of the cost (e.g. waste fee); in the case of administrative fees (e.g. fee for building permits, they are based on an assumption of the benefit caused by the state service.
A look at the revenue from the public budgets of the federal, state and local governments (see slide) clearly shows that non-tax revenue is of relatively greater importance at the local level. This is as a large part of the fees for public services are charged here. What is more, the provision of public services in the municipalities often goes hand in hand with greater economic activity on the part of the state. In contrast to China, however, there is no need for comprehensive reforms in the area of non-tax revenue, as a uniform legal basis already exists and since the municipalities generally have stable revenues including from property tax and with shares in income and sales tax revenues. Nevertheless, there controversial discussions on the topic do exist from time to time. This includes the ongoing debate about extending the tolls for motor- and expressways to include cars, as well as repeated court proceedings against excessive cost calculations for the user fees of larger public services, which in Germany are often won by the users.
Moderated by Mr. Manuel Holtmann (GIZ), a lively discussion then developed among the participants, in which two aspects were deepened: Firstly, the Chinese side showed particular interest in the fact that administration fees in Germany are not calculated according to the cost-covering principle and the associated question of how the amount of the benefit caused by the state benefit can be adequately quantified. Secondly, it was discussed why income from user fees is often not to be found in the cash register statistics in the course of the privatization of public services in Germany.
The second day of the event was moderated by Ms. Cai Qiaoping, deputy head of the legal department of BAC, and primarily focused on the legal framework of non-tax revenues in Germany. Since the federal states have their own financial sovereignty and the municipalities have derived financial sovereignty, and since non-tax revenue at municipal level is of particular fiscal importance, this was discussed by the example of Hesse and the Hessian municipalities. With Mr. Patrik Kraulich, head of the “Municipal finance I” department, and with government councilor Dr. Ina Lohse, GIZ was able to recruit two speakers with excellent insights into administrative practice. In the course of the morning, they presented excerpts of the Hessian Administrative Costs Act and the Municipal Taxes Act as the primary legal basis for non-tax revenue in Hesse, as well as the Administrative Enforcement Act including the Enforcement Costs Act as a secondary legal basis.
Against the background of the particular importance of state-owned companies and the so-called “earmarked government funds” in China, the speakers then went into more detail about the legal framework for economic activities in Hesse (e.g. Fraport) and the so-called “special levies”. Similar to earmarked government funds in China, the latter are only permissible if the group on which these special levies are imposed has a specifiable relationship to the purpose for which the levy is levied (e.g. fishing levies). In the subsequent discussion, the judgment of the Federal Constitutional Court, according to which all budget plans must be accompanied by documentation of all special levies in order to strengthen transparency and parliamentary-democratic oversight (see presentation slide), received particular attention.
In her closing words, Ms. Cai Qiaoping summed up that the initial concern that differences in the regulation of non-taxable income in China and Germany were too great to enter into a profitable exchange on the subject matter had not materialized. On the contrary, existing similarities meant that Chinese side has received impetus for reforms that can be applied directly in China based on the German model. This included, for instance, the theoretical basis of the distinction between taxes and levies, namely that between the principle of ability to pay on the one hand and the principle of equivalence on the other. In addition, she underscored that she was drew new motivation from the event to press ahead with the development of an administrative costs law in China.
The around 20 Chinese participants came mainly from the Budget Affairs Commission and the Legal Working Commission of the Standing Committee of the National People’s Congress, as well as to a lesser extent from the National Development and Reform Commission (NDRC), the Ministry of Justice (MoJ), the Ministry of Finance and from the State Tax Administration. A participant survey showed that the understanding of the German legal framework for non-tax revenue had improved significantly among the participants. Since interest in an ongoing dialogue in the area of tax legislation was emphasized on various occasions, GIZ’s legal program will continue to support bilateral exchange on related topics.