China's tax revenue up 5.9% in first eight months, broadly matching economic growth: expert

China's State Taxation Administration released tax data on the 20th showing that tax revenue collected by tax authorities in the first eight months of this year (excluding customs-collected import VAT, consumption tax, tariffs, and tonnage tax, and before deducting export rebates) increased by 5.9% year-on-year. This figure is 0.5 percentage points higher than the nominal GDP growth rate of 5.4% recorded in the first half of the year.

According to Huang Lixin, Director of the Institute of Taxation Science under the State Taxation Administration, tax revenue is calculated at current prices, and overall tax growth this year has been broadly consistent with economic growth. He identified three main factors contributing to the slightly faster growth of tax revenue compared to GDP:

Price Increases

The Producer Price Index (PPI), which is closely correlated with tax revenue, turned positive in March this year, ending 41 consecutive months of negative growth. Since then, the growth rate has generally risen, with a cumulative increase of 2% in 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%), creating a divergence in how price factors affect tax revenue and GDP growth.

Capital Market Factors

Capital market transactions have driven growth in the stamp tax on securities trading, corporate income tax, individual income tax, and domestic VAT. The capital market has been generally active this year, with the average daily stock trading volume on the A-share market in the first eight months rising 72.8% year-on-year. This has spurred faster growth in related taxes and industry tax revenues, including:

• Stamp tax on securities trading: up 82%
• Individual 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 revenues from other industries have also increased due to higher investment returns from corporate stock market investments. However, securities transactions and the resulting investment gains represent transfers of ownership of existing assets, not value created by current production activities. While they directly generate tax revenue, they contribute little to current-period GDP.

Policy Adjustment Factors

The formal implementation of the Value-Added Tax Law of the People's Republic of China and its implementing regulations on January 1 this year has led to corresponding adjustments in certain tax policies. Additionally, some tax incentives that do not align with high-quality development or current economic conditions have been standardized. These policy adjustments have increased tax revenue but do not directly contribute to GDP growth.

Huang Lixin stated that under the combined effect of these factors, tax revenue growth has slightly outpaced GDP growth, but overall remains consistent with the growth of the economic tax base. This, he noted, underscores the resilience and vitality of China's economic development.

Tax Contribution by Enterprise Scale

The tax data also show that in the first eight months of this year:

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

Chen Binkai, Vice President of the Central University of Finance and Economics, commented that in recent years, China has implemented a series of tax and fee policies benefiting small and micro enterprises. These policies, he said, have played a significant role in reducing the tax burden on the large number of small and micro enterprises.