The Ministry of Finance issued a notice on Friday requiring four kinds of local governments' nontax income－revenues from land sales, mining, sea area utilization and uninhabited sea island utilization－be paid to and managed by the central tax department. Seven provincial-level regions are to pilot this from July 1, with the practice due to be rolled out nationwide from Jan 1 next year.

That local governments will hand over their income from land transfer to tax departments has caught wide attention, as that is a main source of revenue for local governments, and if implemented, that reform will not only change the whole land market, but also the operation models of local governments.

The central authorities have vowed to form an integrated urban and rural land market, and the reform for the collection of local land transfer fees by the tax authority will be a decisive move in that direction, weaning local governments off revenues from land transfers.

The reform aims to straighten out the boundary between government and market, and the relationship between tax and rent in the land market, and provide strong support for the marketization of land as an essential resource.

That the central tax department will collect and manage the land rent is not only conducive to rectifying the messy so-called land finance in some places, it is also conducive to constructing a complete and comprehensive government balance sheet, perfecting the construction of China's national debt market system, and providing an institutional guarantee for the development of local debt market in the future.

At the same time, it will also help to prevent some local governments from using land as a means to leverage the financial system and interfere with the marketization of the financial system.

As the current tax structure is based on turnover tax, the proportion of direct tax is relatively low, and for local governments, there is no strong local tax to support their local public service expenditure, so the land transfer fee can serve as a reliable tax revenue for local governments.

The collection and management of land transfer fees by the central tax authority will improve the efficiency of fund use, and make sure local governments have sufficient financial support to carry out the central government's policies and deployments.