On January 1, 1994, mainland China replaced its industrial and commerc
ial consolidated tax system with a circulation tax system consisting o
f value-added tax (VAT), business tax, and consumption lax. Under the
revenue-sharing financial system, the central government's share of VA
T levies is 75 percent and local governments' share is 25 percent. As
over 60 percent of mainland China's tax revenues have come from VAT, c
ontrolling central and local tax sources has become a serious challeng
e.