China Proposes Consolidated Local Surtax at 11%-13% Rate
China's Ministry of Finance and State Taxation Administration released a draft local surtax law for public comment on August 28, merging urban maintenance and construction tax, education surcharges, and local education surcharges into a single local surtax with a rate range of 11% to 13%. The tax base remains VAT and consumption tax paid, with rates set by provincial governments within the range. Estimated combined revenue of about RMB 946 billion in 2025 would represent 7.7% of local general public budget revenue.
The Ministry of Finance and the State Taxation Administration released the Draft Local Surtax Law of the People's Republic of China for public comment on August 28. The draft consolidates the current urban maintenance and construction tax, education surcharge, and local education surcharge into a single local surtax, following a principle of tax system transition, with a rate range of 11% to 13% and overall tax burden remaining stable.
The local surtax is levied based on the actual VAT and consumption tax amounts paid by taxpayers. The specific applicable rate, within the 11% to 13% range, is proposed by provincial, autonomous region, and municipality governments, considering local economic and social development and the promotion of a unified national market, and is submitted to the local people's congress standing committee for decision, with filing to the National People's Congress Standing Committee and the State Council. Provisions on tax liability timing, place of payment, and withholding agents align with those for VAT and consumption tax to facilitate coordinated collection of the main tax and surtax.
The Third Plenary Session of the 20th Central Committee of the Communist Party of China proposed studying the merger of the urban maintenance and construction tax, education surcharge, and local education surcharge into a local surtax, authorizing local governments to determine specific applicable rates within a certain range. In March 2026, the Ministry of Finance's annual report on law-based government construction for 2025 first proposed work on formulating and revising laws including the local surtax law. Under current rules, the urban maintenance and construction tax is based on actual VAT and consumption tax paid, with rates of 7% for urban areas, 5% for county towns and towns, and 1% for other areas. The education surcharge and local education surcharge are levied at 3% and 2% of the actual VAT and consumption tax paid by entities and individuals, respectively.
Ministry of Finance data show that urban maintenance and construction tax revenue reached RMB 517 billion in 2025, while education surcharge and local education surcharge revenues are not publicly disclosed. Based on the 2025 VAT and consumption tax combined total of RMB 8.5804 trillion as the tax base, applying the 3% education surcharge rate and 2% local education surcharge rate, the combined education surcharge and local education surcharge revenue is estimated at about RMB 429 billion. Accordingly, the three items total approximately RMB 946 billion, accounting for 7.7% of local general public budget revenue in 2025.