China's tax revenue up 5.9% in first 8 months, largely matching economic growth: expert

Beijing, September 20 (China News Service) — Data released by the State Taxation Administration on September 20 shows that in the first eight months of this year, tax revenue collected by tax authorities (excluding customs-collected import VAT, consumption tax, customs duties, 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.

Huang Lixin, Director of the Institute of Taxation Science under the State Taxation Administration, stated that since tax revenue is calculated at current prices, the overall tax growth this year has generally been consistent with economic growth. He attributed the slightly faster growth in tax revenue compared to GDP to three main factors:

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 increased, with a cumulative rise 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%), indicating a difference in how price factors affect tax revenue and GDP growth.

Capital Market Factors

Transactions in the capital market have driven growth in securities transaction stamp tax, corporate income tax, personal income tax, and domestic VAT. The capital market has been relatively active this year, with the average daily stock turnover on the A-share market in the first eight months increasing by 72.8% compared to the same period last year. This has spurred rapid growth in related taxes and industry tax revenues, including:

• Securities transaction stamp tax: up 82%
• Personal income tax on restricted stock 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 been boosted by increased investment returns from corporate stock market investments. 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 generally do not increase current-period GDP.

Policy Adjustment Factors

The implementation of the Value-Added Tax Law of the People's Republic of China and its implementing regulations, effective 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 conditions have been standardized, resulting in increased tax revenue. However, these policy adjustments do not directly contribute to GDP growth.

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

Tax Revenue Distribution Among Enterprises

Tax data also shows 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, analyzed that in recent years, China has implemented a series of tax and fee reduction policies benefiting small and micro enterprises, which has played a significant role in lowering the tax burden on the vast number of such enterprises.