分税制 (fenshui zhi)

Tax Sharing System

A policy arrangement between the central government and local governments on collecting and spending of different taxes.

Popular in many market economies, the system divides all tax items into State taxes, local taxes and several shared taxes. The central and local governments collect taxes and manage the public affairs with the money as agreed. Transfer payments from the central government to localities are also part of the system to narrow regional differences. China started a reform in 1994 to introduce this system and established State taxation administrations as well as local taxation administrations to implement the system.

(China Daily 05/16/2008 page8)