Chapter 1959 - Indirect Taxes, Direct Taxes, and Tax Farming
However, "property" was a very broad concept. In this timeline, everything from land and buildings to antiques, valuable clothing, jewelry, and even bonded servants could be counted as "property." For shops, counters, scales, and other business tools—"money-making equipment"—were also property.
Appraising all these items one by one was nearly impossible for the Executive Committee's tax system. For one thing, they lacked qualified accountants. For another, there were no standards whatsoever for appraising many items—for instance, the calligraphy, paintings, curiosities, and antiques commonly displayed in great quantities in wealthy households were theoretically quite valuable, but difficult to measure in monetary terms.
Such areas with considerable arbitrariness were prime opportunities for rent-seeking through power. Transmigrators didn't have three heads and six arms; they couldn't personally handle everything. The integrity of naturalized citizen cadres and the Cheka's anti-corruption capabilities couldn't be overly trusted either.
After much consideration, and incorporating suggestions from other personnel in the finance department, Ai Zhixin decided that in property valuation, the focus would be on immovable property such as shops, residences, forests, and farmland.
Such immovable property was difficult to conceal, had relatively clear market transaction prices for reference, and valuation data had standards to follow. Real estate registration had been fairly complete even under the Ming Dynasty, and every time the Executive Committee took over a city, they re-registered immovable property and issued property deeds, so property rights documentation was quite complete—quite reasonable as a basis for taxation.
Immovable property like farmland and forests also had relatively clear registration materials. The "land survey and measurement" work had already begun in the rural areas around Guangzhou, with various types of rural land being re-registered. Once this data was available, not only would agricultural tax collection be guaranteed, but immovable property tax assessment could also proceed.
Servants also counted as a type of property, so when collecting property tax, their value was calculated according to their indenture contracts and included in the total property value.
Following the principle of "embedding prohibition within taxation," a separate "slave-keeping tax" was also levied, abolishing the old exemption threshold for keeping slaves and collecting on a per-head basis. At the same time, the progressive principle continued to apply—the more slaves kept, the higher the tax rate.
Liquid assets such as goods and currency (gold and silver) could temporarily only be estimated through fixed immovable property due to difficulty in appraisal. Generally divided by the taxable party's occupation: merchants were considered to have higher liquid assets, so when calculating assets, their recorded liquid assets were calculated at 100% of their immovable property value; large landlords at 50%; prosperous farmers, wealthy households, and small merchants had no liquid asset estimation.
Immovable property plus estimated liquid property equaled total assets.
The tax rate for large merchants with assets above a certain level was 1% of total assets annually; for large landlords, 0.5%; for ordinary wealthy households, prosperous farmers, and small merchants, 0.2%.
For small households with immovable property below a certain level, only a symbolic poll tax was collected.
Agricultural tax was a special category within property tax. In terms of specific collection, the progressive system was abolished in favor of a fixed tax rate based on land area, primarily using grain and the five cereals as payment in kind.
For agricultural tax collection, there was already a fairly mature mechanism in Hainan, so Ai Zhixin didn't need to worry much—just follow the existing regulations.
The second major tax category was circulation tax—essentially the likin, customs duties, market inspection fees, consumption taxes, and so on.
It was divided into two main rates: The first was a basic market entry sales tax similar to customs duties, collected at checkpoints established at city gates, ferry crossings, bridges, and other transportation chokepoints.
All goods entering the market for sale were first charged a 5% entry sales tax and had to undergo spot checks before entering the market to ensure basic safety. Goods that entered the market without passing through the entry sales inspection were considered contraband; once hygiene or quality problems arose, both buyer and seller would be heavily fined.
The second was special ad valorem taxes on major commodity wholesale markets for items like rice, salt, tea, spices, timber, wine, meat, vegetables, and fishery products, collected at major wholesale markets.
The cumulative circulation tax paid on general commodities was capped at no more than 20% of the local price. Tax checkpoints and markets all provided relevant tax receipts as proof of payment to prevent double taxation. Livelihood shops whose market supply was scarce would enjoy tax exemptions and low rates.
The third major tax category was stamp duty. Stamp duty was actually also a direct tax, but the tax burden was relatively less painful—the problem was that the collection amount couldn't be too high. Ai Zhixin planned to collect license stamp duties: shops with sales licenses would pay a fixed annual stamp duty, and paying the license fee would allow them to sell relevant goods while accepting supervision. This tax would temporarily be collected on behalf by trade associations, with a portion returned to the associations after collection as operating expenses, while also being responsible for supervision.
Various business permits, licenses, land deeds, property deeds, contracts... all required paying stamp duty either once or annually, strengthening the concept of contract law.
Ai Zhixin's plan was primarily based on circulation tax. Circulation tax was an indirect tax with low collection costs, low tax burden pain, and low requirements for collection personnel—consistent with the Executive Committee's current technical and human resource conditions. Direct tax collection was complex, with high collection costs and high tax burden pain, potentially intensifying social conflicts, but had social benefits in adjusting wealth between rich and poor, so a portion still needed to be levied.
The overall tax policy was: currency reform first, taxation second. Use taxation to promote the advancement of currency reform while forcing the old commercial and industrial enterprises and wealthy households to introduce modern accounting systems and maintain sound accounts.
When collecting, accept legal tender and some payment in kind (agricultural tax); do not accept broken silver, copper coins, or other goods from shops.
For property tax collection, start with generous assessment, then if the other party applies for review, the excess tax could be refunded. During refunds, as long as the other party provided relevant accounting information—property, land deeds, account books proving overcollection—even if the other party had concealed some things, the overcollected amount could still be refunded. This encouraged merchants and wealthy households to declare their property, sales income, and other accounting information during the refund review process.
Refunds would include a certain amount of interest, paid in legal tender, primarily in circulation vouchers in actual practice—ensuring the stability and usability of the new legal currency: silver dollars and circulation vouchers. Legal tender actually contained seigniorage, yielding much more than regular tax revenue.
To cultivate the mindset of tax obligation, all adults 18 and over, regardless of gender, were required to pay a poll tax. The poll tax amount was very low; taxpayers would purchase tax stamps themselves and affix them to the back of their identification documents. If no tax stamp was found when documents were inspected, it constituted tax evasion.
Ai Zhixin knew his tax system, simplified again and again, still had major problems, especially in specific implementation where many details needed to be standardized. After thinking about it, he decided to bring this matter up at Guangzhou's transmigrator council meeting—after all, collective wisdom in practice was better than working behind closed doors.
He was very clear that what he was about to do would be considered "shocking" by old timeline standards. The wealthy households of Guangzhou especially—one could readily imagine their expressions after learning of the tax plan; they would truly want to "eat his flesh and sleep on his skin." Even the shopkeepers of small shops who had been freed from various extortions because of the "change of dynasty" would probably cry for their parents saying they couldn't survive anymore when they saw these tax items one by one.
After a few months of implementation, there would inevitably be merchants in Guangzhou hanging themselves or drowning over tax issues—this was all inevitable. When the Republican government levied the slaughter tax back then, there were anti-slaughter-tax disturbances everywhere, and many places ultimately failed to implement it. When New China levied the slaughter tax after its establishment, it also met with great resistance.
Once the new tax system was fully rolled out, social conflicts in Guangzhou would inevitably intensify to some degree, and the generally "harmonious and happy" atmosphere between the Executive Committee and Guangzhou's citizens since entering the city probably wouldn't exist anymore.
However, both the central and local governments were currently spending money like water. Mayor Liu had recently made a fortune from "confiscation" due to the abolition of the brokerage houses and the witchcraft case. Although the subsequent plague had caused considerable financial losses, there was still some surplus at the moment, so Ai Zhixin had some buffer time to gradually implement and rectify taxation. Since this milk cow Guangzhou had fallen into the Executive Committee's hands, there was no reason not to give it a good milking. According to the estimates of the Five Avenues bigwigs, Guangzhou's tax potential was quite substantial indeed.
However, what Ai Zhixin found even more difficult was the areas outside Guangzhou—because in addition to being Director of the Guangzhou Municipal Finance and Tax Bureau, he was also the Tax Commissioner for the Guangdong Region.
As the Ming Dynasty's second-largest tax source region, there was no reason Guangdong shouldn't produce even more tax revenue under the Executive Committee's rule. Still, Guangzhou and even the Pearl River Delta were manageable—after all, that was where transmigrators and naturalized citizen cadres were most concentrated, and though governance standards couldn't match Hainan, Taiwan, or Jeju, they were still much better than the Ming Dynasty.
But once you left the Pearl River Delta, the Executive Committee's ruling efficiency dropped drastically. Ai Zhixin's tax system could probably be barely implemented in county seats, and agricultural taxes could rely on the existing grain tax collection system. As for other taxes, there was probably no possibility of collection.
After much consideration, Ai Zhixin thought of implementing a tax farming system in these newly ruled areas with weak governance foundations.
The so-called tax farming system meant the state contracted its tax collection activities to the highest bidder, who only needed to pay the state a fixed rent in advance and could keep the rest of the tax revenue. Tax farming had a long history and was the primary tax collection mechanism used by many countries before the 19th century. Under this system, tax farming actually allowed the state to obtain relatively high tax revenue at lower administrative costs.
However, even Ai Zhixin himself felt this proposal was somewhat risky. Because within the Executive Committee, tax farming was considered an evil system—it placed the fate of taxpayers in the hands of rapacious tax farmers. Moreover, history was replete with examples of the greed and rampant exploitation of tax farmers causing terrible consequences. In virtually all history books, tax farming was a target of denunciation and criticism.
(End of Chapter)