In pre-modern China, low formal tax coexisted with high corruption and great burden of informal surtax. Geographic size and monitory technology cannot explain this principleagent problem. We argue that without constraints on power, the emperor (or central government) could not credibly commit that he does not predate on the official’s (or localgovernment’s) legal income, and had to turn a blind eye on illegal income of the officials and informal surtax of the local governments. This paper explores a nationwide tax reform in 18th century that formalized county surtaxes with much lower rate than the informal ones. The surtaxes were submitted to provincial capitals, partially retained as emergency funds, and redistributed to counties as anti-corruption salaries and government fees. We explore different timing of reform across provinces and find, using yearly data on famine relief and weather types, that the reform reduced tax payers’ burden and enhanced public goods provision by the provinces as long as the central government didn’t predate on the provincial fiscal autonomy. But both effects disappeared as soon as the central government started to do so. This study provides a new angle on how legal capacity can shape the evolution of fiscal capacity.