The timing of the reforms taken in each country and achievements in each field are depicted in Chart 1-II-1 and Table 1-II-1.

## 3 -1-1 Fiscal reform

It is often argued that the fiscal burden caused by state enterprises, which were under soft budget constraints, was one of the most important reasons for the demise of the central planning system. During the process of transition there were large-scale changes in the structure of tax collection and expenditures. This can negatively affect the balance of the public sector. This is especially important because the budget deficit is often financed by the lending of the state bank, leading to very high inflation. The need to consolidate fiscal structures should be well recognized. It should be noted that price liberalization might have aggravated the fiscal situation through increased subsidies to state enterprises.

The experiences of these five countries are varied but one common feature is the reform in tax systems. In the centrally planned economies, profit remittance from the state-owned enterprises was an important source of government revenue. With more autonomy to the enterprises and the increase of enterprises not under direct government control the need to change the system to profit from taxes became clear. Thus, changes in tax systems along this line took place during the transition process. On the expenditure side, cutting subsidies such as direct subsidies to state enterprises, is the most important feature of the reform process.

## Cambodia

Before the economic reform of 1989 took place, total government revenue covered about 95 percent of expenditures, of which revenue from abroad represented 60-65 percent of the total revenue. Up to 1992, fiscal revenue in Cambodia covered only 60-65 percent of total expenditures. The fiscal situation actually deteriorated after the reforms started, due to the increased expenditures of civil service wage reform implemented in 1991 and 1992, and the inelastic and narrow tax system. In order to broaden the tax base, the Cambodian government decided to tax the income of individuals whose income exceeds 300 dollars per month from 1994, and to introduce a 25 percent tax for corporate profit in the near future.

Reforms in public finance started in early 1980s with the introduction of treasury bonds as a system of finance. This was followed by the shift from a system of profit remittance to a system of profit retention and corporate taxes in 1984. During the reform process, local governments have more autonomy with the introduction of the fiscal contract system. This, however, created another problem of local governments' tendency to put too much emphasis on revenue-generating projects. In 1985 the indirect tax base was broadened by additional turnover taxes, a value-added tax and a business tax. The most important issue in China's public finance is the negotiation between the central and local governments. The introduction of a new tax scheme, which will replace the existing contract system, was decided in November, 1993. This is expected to reduce the portion of distribution of tax income decided by negotiation.

## Laos

Fiscal reform was one of the most important aspects of the New Economic Mechanism started in 1986. It consists of two parts: renovation of government expenditure and increase