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Taxman Clamps Down As Revenues Fall
Summary:

Cover, issue no.397, December 8, 2008
Abridged translation and additional research by Lin Li
Original article
: [Chinese]

China's fiscal revenue has recorded negative growth for two months straight, prompting central and local officials to go full force in boosting tax collections.

Some municipalities have even resorted to shame tactics, publicizing the names of tax-owing companies in local media.

State fiscal revenues dropped by 3.1% year-on-year in November to 379.2 billion yuan, data released on Thursday by the Finance Ministry revealed.

In October, China recorded 532.9 billion yuan in fiscal revenues, down 0.3% year-on-year, the first decline in 12 years.

The trend of falling fiscal revenue might continue, alongside with falling tax collections, one local official from the finance department said.

This would add more pressure on the Chinese government's source of funding to support a series of economic stimulus plans to boost domestic growth.

China planned to invest four trillion yuan in the next two years. Besides the central government, local governments too had come up with various developmental projects totaling some 10 trillion yuan.

As Revenues Fall, Up Enforcement
The Finance Ministry said in a statement released on its website that a slowing economy and tax cuts to boost the markets were the main forces behind the slip.

Before the fall in recent months, fiscal revenues were trending upwards. Between January and November, the growth rate was 20.5% year-on-year.

Meanwhile, fiscal spending had expanded considerably in November, up 16.5%, or 74.58 billion yuan from a year earlier. As for the first 11 months this year, the spending increased by 23.6% compared to last year.

In late November, the State Administration of Taxation (SAT) had issued a notice to local offices demanding pro-active tax collection. The Finance Ministry too issued a reminder to cut spending and enhance taxation enforcement.

Local tax officials told the EO that in the past years, tax revenues had consistently been higher than budgeted, and some local authorities were in no hurry to book their current year collection.

Late last month, Lanzhou municipal authorities gathered some 1,000 local officials for a conference on how to boost tax collection, check for defaulters, and expose the names of those with significant overdue taxes in local media.

The "shame tactic" of exposing tax defaulters had caught on in several Chinese cities, including Dalian, which advertised in local media for two days straight a list of 21 enterprises who had failed to pay some 102 million yuan in taxes.  

A local tax official told the EO that the government was facing a catch-22: "On one hand, we try to stimulate the economy by introducing tax incentives; but on the other, we also have to ensure that fiscal revenues don’t drop too drastically. This is very hard."

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