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Wei Cui on The Administrative Foundations of the Chinese Fiscal State
Book Excerpt: What lessons the Chinese experience holds for building tax capacity in developing countries and a framework for understanding Chinese fiscal politics.
Professor Wei Cui joined the law faculty at the University of British Columbia in 2013. Before becoming a full-time academic, Wei practiced tax law for over 10 years in New York and Beijing. During 2009-2010, he was Senior Tax Counsel at the China Investment Corporation, China's largest sovereign fund. He has also served as a consultant to China’s National People’s Congress, the Ministry of Finance, and the State Administration of Taxation, as well as to the United Nations.
Professor Cui’s new book, The Administrative Foundations of the Chinese Fiscal State, offers a systematic study of Chinese taxation that explains the lessons China’s successful revenue-raising effort holds for developing countries, the reasons why mainstream economic theories must be revised to recognize fundamentally different types of state capacity, and the challenging questions the Chinese paradigm raises for the future of taxation.
On subjects ranging from trade to democratization, there has lately been a wave of laments about China's development belying Western expectations. Yet these disappointments often come with misunderstandings of the very institutions that China was expected to adopt. Chinese taxation offers a sharp illustration. When China introduced a tax system suited for the market economy, it fully intended tax collection to rely on self-assessment, audits, and the rule of law. But this Western approach was quickly jettisoned in favour of one that emphasized monitoring of taxpayers and ex ante interventions, at the expense of deterrence and truthful reporting norms. The Chinese approach surprisingly matches recommendations made by recent economic scholarship on tax compliance and state capacity. China's massive but little-known explorations in taxation highlight the distinct types of modern state capacity, and raise challenging questions about the future of taxation and the superiority of institutions based on rule of law.
——Offers a novel, systematic, in-depth, yet concise analysis of the foundational institutions in Chinese taxation
——Makes an important contribution to the study of tax and development by clearly explaining fundamental differences between tax administration paradigms, and highlighting their political determinants
——Analyzes Chinese taxation and presents a critical perspective on Chinese law
'One of the foremost international tax scholars in the world, Cui Wei presents a fascinating yet largely unknown recent development in international fiscal policy: the extraordinary decision by China to implement its income tax system without relying on principles - the rule of law, and self-assessment by taxpayers - that are foundational elements of sound tax administration in most developed countries. Cui's highly readable, carefully researched, and balanced account is must-reading for those interested in understanding China's likely future place on the world stage.' George K. Yin, Distinguished Professor of Law and Taxation Emeritus, University of Virginia
'This book provides a fresh and informative account about how the Chinese tax system really works. Even those not specifically interested in China or taxation can learn much from this examination of the development of China's policy in this area. Wei Cui's book offers not only a novel approach to studying tax administration but also many useful lessons for anyone concerned with implementing public policy in any country. In policy analysis, the devil is usually found in the details: this is a rare study that not only delves into the relevant details but also carefully places them within the relevant context and shows how context shapes both policy and outcomes,' Richard M. Bird, Professor Emeritus of Economic Analysis and Policy, Rotman School of Management, University of Toronto
'Cui presents an engrossing story of the operation of the Chinese tax and fiscal systems. The rich empirical data, the refreshing perspective from which the subject matter is examined, and its novel arguments make a valuable contribution to the field. Readers familiar with taxation or Chinese legal systems will appreciate the author's mastery of his materials as well as his ability to identify key features from an array of discrete and complex information sources and to interpret those features in familiar terminologies to readers outside China.' Yan Xu, The China Quarterly
'In his [remarkable] book…Cui composes a detailed picture of an organized modern tax system that does not depend on rule of law. Yet the Chinese fiscal system is neither a dissolute mess nor a top-down exercise of discretionary power…This is more than a story about tax farming or crony Communism … Cui's observations are valuable and thought-provoking for the study of any jurisdiction's tax system.' Susan C. Morse, Florida Tax Review
'Cui's monograph is a must-read: it is carefully crafted, beautifully written, and absolutely fascinating.' Kim Brooks, Canadian Tax Journal
© Wei Cui 2022. All Rights Reserved.
My pursuit of the twin aims of the book—explaining what lessons the Chinese experience holds for building tax capacity in developing countries and setting out a framework for understanding Chinese fiscal politics—is informed by a new, critical perspective about law. I depict contemporary Chinese tax administration as sustaining a special type of social order: it is secured by a state apparatus and allows very large-scale social coordination; but to a substantial extent, this type of social order dispenses with the benefits of law. It illustrates, at a grand scale, a basic distinction between the coercive power of the state and law-based social ordering.
The relation between the state’s coercive power and the law is one of the most fundamental subjects in legal theory. Whether private subjects abide by the law because disobedience will be observed and punished by the sovereign, or whether they do so because they have internalized the norm of law-following, was central to the debate between legal philosophers like John Austin and H. L. A. Hart. In the last three decades, many scholars, especially those pursuing law and economics analysis, have identified both the conceptual possibility and concrete empirical manifestations of “law without the state.” The idea is that a social order can be simultaneously characterized by distinctively legal norms and sustained without the state apparatus. This idea is of clear social scientific importance. But it can be further grasped if we can also better understand “state without law.” My study of Chinese tax administration illustrates what is distinctive about law as a form of social order, by presenting a type of large-scale social coordination from which law is absent.
It is tempting to imagine a lawless state as arbitrary, violent, and plundering. Especially for Western readers, to say that a state operates without the law inevitably sounds damning. But this is mistaken. I will show that a state that is organized, peaceful, and in many ways compatible with modern market economies, may nevertheless largely dispense with legal norms. Specifically, while my depiction of Chinese tax administration as coercive and based on substitutes for law will almost certainly sound critical, I would remind readers that the Chinese tax system has been successful in many respects. It has raised substantial revenue without violent opposition and has allowed the Chinese government to promote economic growth and even redistribution in many ways. It is not even in any obvious way more unjust than tax systems in some developed countries, or other countries enjoying greater rule of law. Therefore, writing as a legal scholar, I think it is not implausible to claim that the violation of the rule of law in Chinese tax administration shows merely that law may be an inessential instrument for governance, and that the rule of law is not the only social value that matters. Not coincidentally, a state that dispenses with law is unlikely to be compatible with the protection of individual rights and democratic rule. But more interestingly, its grip on society is at the same time ever-present and tenuous.
State-sponsored social orders that do without law pose deep intellectual challenges apart from their conflict with our moral sensibilities. There is a widespread perception across the social sciences that law is simply what legislatures announce and what courts adjudicate; it may not reflect what people actually do. This nearly-universal discrepancy between what is “on the books” and what happens in practice may lead social scientists to suppose that they can afford to ignore the law: if law exists merely in fiction, it is unimportant for the positive enterprises of social science. Moreover, if the rule of law is only one of the many values we hold—as it undoubtedly is—and especially if its significance issues only from its indirect contribution to social welfare, considerations of law become secondary.
I believe this unreflective view about law is wrong and harmful for the social scientific enterprise for two reasons. First, law is not just what is written “on paper.” Law is a distinctive form of social practice; social cooperation structured by legal norms has a fundamentally different character from such cooperation organized without legal norms. Law is thus an essential way of describing what people do. This fundamental notion has pointed illustrations in taxation. The filing of tax returns, and the reporting of one’s tax attributes and computation of tax liabilities on such returns, are quintessential rule-following behavior. They would not exist—they could not be described as return-filing, etc.—if there was no expectation of conformity to some norm of truthful reporting. The same is true is for the concept of an audit. Thus, even the basic set-up in economic models of tax compliance follows a way of describing the world that assumes the relevance of legal norms. If the concepts of return-filing and audits are applied in contexts where following the law is largely irrelevant, then we immediately mis-describe social reality. Because much of the vocabulary for describing modern taxation incorporates assumptions about law, to describe a world without law requires a different vocabulary, one that this book attempts to piece together for readers.
Second, without recognizing the deep significance of legal norms for modern taxation, economists risk offering policy recommendations without understanding their implications. For example, much recent economic literature takes it as self-evident that governments must obtain information about taxpayers’ activities to collect tax. But if the government possessed perfect information about taxpayers, self-assessment would become unnecessary. In this sense, economists are more interested in substitutes for law-abiding behavior than in such behavior itself. In this book, I depict Chinese tax administration as tasking hundreds of thousands of grassroots tax collectors to gather as much information as they can about taxpayers. Most Chinese tax administrators’ efforts can be seen as devoted to discovering substitutes for law. Many readers may find the Chinese practice as I describe alien, even dystopian. But having studied closely both economic theories of tax compliance and Chinese practice, my conclusion is that the match between the two is greater than the match between such theories and taxpayer experience in developed countries.
The arguments I advance in this book have many implications for the large and growing body of scholarship on Chinese law, although I will be able to discuss them only briefly in Chapter 9. Much of this scholarship concerns what I would call the supra-structure of law: legislatures, courts, legal principles and doctrines that scholars would like to persuade legislatures and courts to adopt. While I participate in such discourse as a legal scholar, I believe it is fundamentally blind to much of Chinese social reality. While it is a mistake to assume that law is irrelevant to describing social reality, the claim of irrelevance is more apt when applied to the supra-structures of law. This is because, in China, state-sponsored social ordering often marginalizes such supra-structures. For example, Chinese administrative law scholars have written for decades about fair procedures in the government imposition of penalties. The reality of Chinese tax administration, however, is that tax collectors rarely bother to impose penalties—and this is highly likely to be true in other fields of Chinese governance. Similarly, scholars studying the judiciary to assess the advance of the rule of law in China ignore the vast state apparatus that makes private parties unlikely to litigate in the first place. For these reasons, even scholars who are critical of China’s legal system may over-estimate the significance of law in the country and unwittingly subscribe to a discourse (sponsored by the Chinese government) that pretends law matters. To avoid this error, it is vital to identify the systematic alternatives to law that actually support daily governance.
© Wei Cui 2022. All Rights Reserved.
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