Abstract

The People’s Republic of China (PRC) implemented a Fuel Tax Reform in 2009 that made significant changes to the way the country funds and delivers its “ordinary road” program(the ordinary road system generally includes the various road classifications, excluding expressways). First, the reform abolished six types of fees charged for roads. Second, it removed authorization for future loan–toll initiatives on 630 Class II roads and established a schedule for annulling the existing tolls on Class II roads. Third, it introduced a series of increases in motor vehicle fuel tax to replace the abolished funding sources.

The Fuel Tax Reform was seen as an important public policy initiative that reflects the PRC’s desire to address several important considerations such as reduction of emissions, tax equity, road transport efficiency, and pricing of oil products. Since its implementation, the Fuel Tax Reform has proven to be very effective by centralizing revenue collection and enhancing the ability of the central government to influence road planning and policy due to its new role as the main source of funding for ordinary roads.

(i) the lack of a mechanism to regularly adjust tax rates for inflation and other factors,

(ii) the need for additional revenues to meet planned ordinary road maintenance and construction targets,

(iii) use of debt for financing ordinary roads,

(iv) long-run feasibility of fuel taxes as a source of funding for roads,

(v) rationalization of roles and responsibilities of different levels of government,

(vi) the need for a new national-level programmatic approach to road development

and management,

(vii) improved fund management and allocation processes,

(viii) the need for enhanced organizational capacity, and

(ix) development and application of performance management practices in the sector.