China's tax revenue up 5.9% in first 8 months, official says largely in line with economic growth

September 20 — Tax revenue collected by tax authorities in the first eight months of this year rose 5.9% year-on-year (excluding customs-collected import VAT, consumption tax, tariffs, and ship tonnage tax, and before deducting export tax rebates), according to the State Taxation Administration. This figure is slightly higher—by 0.5 percentage points—than the 5.4% nominal GDP growth recorded in the first half of the year.

Huang Lixin, Director of the Institute of Taxation Science under the State Taxation Administration, noted that tax revenue is calculated at current prices. He attributed the slightly faster growth in tax revenue compared to GDP to three main factors:

1. Price Increases

The Producer Price Index (PPI), which is closely correlated with tax revenue, turned positive in March this year, ending a 41-month streak of negative growth. Since then, its growth rate has generally risen, with a cumulative increase of 2% over the first eight months. This has driven faster growth in tax revenue calculated at current prices. However, the impact of prices on GDP growth in the first half of the year was reflected in the GDP deflator (estimated at 0.7%), indicating a difference in how price factors affect tax revenue and GDP growth.

2. Capital Market Activity

Transactions in the capital market have driven growth in stamp tax on securities trading, corporate income tax, personal income tax, and domestic VAT. The capital market has been generally active this year. In the first eight months, the average daily stock trading volume on the A-share market reached 2.7 trillion yuan, up 72.8% year-on-year. This has spurred rapid growth in related taxes and industry tax revenues, including:

• Stamp tax on securities trading: up 82%
• Personal income tax on restricted share transfers: up 59.7%
• Tax revenue from the securities industry: up 65.6%
• Tax revenue from the insurance industry: up 14.6%
• Tax revenue from other financial industries: up 18.5%

Tax revenue from other industries has also been boosted by increased investment returns from stock market participation. However, securities transactions and the resulting investment gains involve the transfer of ownership of existing assets, not the creation of value from current production activities. While they directly generate tax revenue, they contribute little to current-period GDP.

3. Policy Adjustments

The Value-Added Tax Law of the People's Republic of China and its implementing regulations came into effect on January 1 this year, leading to adjustments in certain tax policies. Additionally, the state has standardized some tax incentives that were deemed inconsistent with high-quality development or current economic conditions. These changes have increased tax revenue but do not directly boost GDP.

"Under the combined effect of these factors, tax revenue growth has slightly outpaced GDP growth, but it remains broadly aligned with the growth of the economic tax base. This also reflects the resilience and vitality of China's economic development," Huang Lixin said.

Large Enterprises Dominate Tax Contributions

Chen Binkai, Vice President of the Central University of Finance and Economics and a long-time researcher on income distribution and development economics, analyzed that from the perspective of taxpayers, tax revenue is primarily contributed by large enterprises. Small and micro enterprises benefit from numerous tax incentives and contribute significantly less to overall tax revenue.

Tax data for the first eight months shows:

• The top 10,000 enterprises by tax payment contributed nearly half of all tax revenue.
• The top 1 million enterprises contributed 90% of all tax revenue.
• Other enterprises, including small and micro businesses, accounted for only about 10% of total tax revenue.

"This is because China has implemented a series of tax and fee policies benefiting small and micro enterprises in recent years. For example, VAT-exempt small-scale taxpayers with monthly sales below 100,000 yuan are exempt from VAT, and the effective corporate income tax rate for qualified small and low-profit enterprises has been reduced to 5%. These measures have played a very important role in reducing the tax burden on the vast number of small and micro enterprises," Chen Binkai explained.