5 - Organizing Revenue

Summary

Chapter 5 examines the complex performance incentives used within China’s tax bureaucracy. There is substantial heterogeneity as one moves down the bureaucratic hierarchy. When the national State Administration of Taxation (SAT) evaluates the performance of provincial bureaus, the metrics deployed are few and equalize outcomes. By contrast, provincial performance evaluations of city-level tax bureaus are comprehensive and detailed. Intriguingly, meeting revenue targets receives little weight. The lowest tiers of management in tax agencies—and the “foot soldiers” in revenue management and tax inspection units—face yet another, completely different set of incentives. While promotion opportunities are scarce, they extract financial rewards from the lowest-ranked leaders in the political branch of the state, who are more motivated than tax agency leaders to meet revenue targets. At the same time, they are subject to performance targets in respect of other tax administration outcomes. Maintaining such metrics facilitates top-down management, and keeps enforcement discretion at the grassroots. Overall, it is imperatives from the political organization of the state that ultimately determine the character of tax administration, not the instrumental relationship that the latter bears to policy implementation.