Between 1949 and 1978, China exercised a fiscal and taxation system adapted to a system of planned economy. Financial policy thus covered every aspect of social life. But since the introduction of the policies of reform and opening to the outside world, China’s finance sector has broken away from the unified distribution of revenues and expenditures system that complied with a highly-concentrated system of planned economy, and gradually carried out reforms of the fiscal and taxation system. The reform is aimed at diversifying financial policy and distributing mostly by coordinating benefits for the purpose of controlling economic operations indirectly and guiding resource distribution. Since 1984, the Central Government first practiced different responsibility methods for revenue and expenditure in different places, and then shifted the national budget system from single entry to double entry. In 1992, in order to meet the needs of micro-control, the financial system started to be greatly reformed. By 1994, a structure of financial system meeting the needs of the socialist market economy, with tax distribution as the core, has been primarily formed. Its major contents are: (1) on the basis of the taxation system, to establish a multi-level financial system that rationally divides central taxes, local taxes and taxes shared by the central and local governments; (2) in the aspect of taxation policy, to set up a new system of turnover tax with added value as the mainstay, and consumption and business taxes as supplements, and at the same time to establish and perfect the income tax system; (3) to practice a double-entry budget system consisting of regular and constructive budgets; (4) to promote the balance of total economic output and the economic structure by means of comprehensively utilizing the budget, taxation, the state debt and allowances.