News, Page 4, Issue 475, June 28
Translated by Tang Xiangyang
Original article: [Chinese]
China is expected to collect a government revenue of eight trillion yuan this year, giving it the second largest fiscal revenue in the world. America has the largest.
While the growth rates of fiscal revenues of developed countries have been around one percent or even negative in the first five months of this year, China's growth rate has been 30.8 percent.
By June, many provinces had already gained half of their planned annual fiscal revenue, one month ahead of schedule. "China should not have a problem in achieving a revenue growth of 10 percent in the second half of this year," an official with the State Administration of Taxation (SAT) said.
Ensuring that the increasing fiscal revenue will be used to improve the livelihood of ordinary people is an issue the Chinese government must deal with.
Eight Trillion Yuan!
China collected a government revenue of 3.547 trillion yuan in the first five months of this year, 836.2 billion yuan more, a 30.8 percent increase, from that of the same period last year, and 200 billion yuan more than the total amount of the first half of last year. The world has been taken by surprise by the huge amount of fiscal revenue China has managed to gain despite the financial crisis.
The amount of fiscal revenue China earned in June is not known. But, according to an official with the SAT, based on statistics from the first half of June, June's growth rate will decrease, but will not reach zero.
Officials with the Ministry of Finance said fiscal revenue would experience a high growth rate in the first half of this year and growth would slow in the second half.
Based on conservative estimates, China will gain a fiscal revenue of over 4.3 trillion yuan in the first half of this year and its total revenue for the year will exceed eight trillion yuan. Earlier this year, China released its budget which showed its plans to collect 7.4 trillion yuan in fiscal revenue.
Harvest Season
"The four-trillion-yuan stimulus package has brought about huge tax revenues," a local taxation official said. With some big projects beginning to run this year, companies have begun gaining revenue and the income gained from the value-added tax, corporate income tax and other taxes has greatly increased.
For example, 882 billion yuan has been invested into subway systems and inter-city railway projects in 22 cities. The train cars involved in these projects have already been delivered or are in the process of being delivered.
China South Locomotive & Rolling Stock Corporation Limited, China's largest locomotive manufacturer, has paid a monthly tax of over ten million yuan in the first half of this year.
The individual income tax imposed on the sale of restricted shares has also produced a large amount of tax revenue for the government. "This form of revenue did not exist in the past," according to local taxation official.
Since January 1, 2010, China began to collect tax from individuals who sell their restricted shares. According to an official with the SAT, from January to March, the 33 provinces and cities directly under the central government collected 885 million yuan of individual income tax on the sale of restricted shares with a rate of 93,700 yuan per capita and the largest tax payer paying 41.29 million yuan.
"The tax revenue brought about by individual income taxes on property transfers has risen by 70 percent in the first four months this year," an official with the SAT said.
The property industry which had been prosperous since the second half of last year up through the first quarter of this year has also greatly contributed to China's fiscal revenue. According to statistics from the Ministry of Finance, the tax revenue concerning land and property contributed to over 35 percent of the total tax revenue last year.
A report from the Ministry of Finance also indicates that there is a correlation between the fast growth of the corporate income tax, individual income tax, business tax, and contract tax with the prosperity of the property sector. For example, the sales tax has grown by 41 percent in the first quarter of this year, including the real estate industry sales tax which has risen by 118 percent.
In the first half of this year, local taxation officials have been required by the SAT to inspect the value-added tax on land nationwide. The inspection has at least doubled land value-added tax revenue and has possibly increased it by four to five times. The national tax inspection targeted at property companies and key enterprises will also bring about large tax revenues.
Last week, the Ministry of Finance announced that as of July 15, the central government would no longer provide an export tax rebate on 406 products, indicating that fiscal revenue will further increase.
Yet fiscal revenue will slow in the second half of this year; the government's tough position on the property industry will be the main reason for a decrease in tax revenue. A local taxation official said, the influence of the government's regulation on tax revenue from the property industry will begin to be apparent in the second half of this year since those policies were issued in April.
An official with the SAT told the EO, although there are elements that will reduce tax revenue, business investment has recovered and the growth rate of tax revenue should be no less than 10 percent for the second half of this year. In China, according to the government budget which was made public, tax revenue accounts for 95 percent of government fiscal revenue.
But this public budget does not contain government funds nor the income dividends paid by centrally-owned enterprises to the central government. Since last year, the considerable income gained from land transfer fees was contained in the governmental fund budget, but not in the budget made public.
Yang Zhiyong, a researcher with the Chinese Academy of Social Sciences Institute of Finance and Trade Economics, said if China's fiscal revenue was tallied using the same methods of most countries by including government funds of 1.8 trillion yuan and profit from state-owned capital which is 42.1 billion yuan, China's fiscal revenue would far exceed its current level of 8 trillion yuan.
Cutting the Cake
The cake is getting bigger and bigger; there has been continual discussion on how to divide up the slices of China's fiscal revenue. Though the government has been putting more into social security, health care and education, people are still not satisfied with the growth rate of these types of investments.
The first task of the income distribution reform project drafted by the National Development and Reform Commission (NDRC) is to increase the amount of fiscal revenue that is spent on improving China's social security system.
Stephen Green, who heads the Greater China research team at Standard Chartered Bank, stresses China's need to reduce its administrative expenditures while expanding its funds spent on social security. "Based on World Bank data, China only spends 1.2 percent of its GDP on its health care system. That's too little."
Germany spends over 33 percent of its GDP on its social security system, one third of which flows to its old-age pensioners and one fifth of which is spent on its statutory health insurance scheme.
The Blue Paper on Development and Reform released by the China Development and Reform Institute, states that although China has been investing more and more into its health care system, the ratio of the total government funds to the total expenditure on health care has been yearly decreasing. The ratio of government expenditure on the health care system to its fiscal revenue and GDP has also been decreasing over the past 15 years.
Before the development of China's recent stimulus package, Green recommended that the Chinese government take advantage of this opportunity to greatly increase the amount it spends on social security, health care, education and policy-based housing and begin providing insurance for ordinary people which would promote domestic consumption instead of their plan to increase GDP by constructing a large number of infrastructure projects.
Yang Liangchu, director of the Ministry of Finance's research department, said China's expenditure on its social security system only amounts to 12 percent of its GDP while that of developed countries is usually over 30 percent; some developed countries even spend half of their GDP on social security. China needs to invest more in its social security system.
"We cannot become a universal welfare state; that would be a great financial burden and would produce a vicious cycle in which we have to continuously collect more taxes to maintain a high level of social security. However, we do have to increase how much we spend on social security," Yang Liangchu said.
Chinese people have a relatively high tax burden compared with residents of other nations. Green believes that China should reduce the amount individuals and enterprises pay in social security fees and have the government contribute more. According to his understanding, currently the social security fee paid by enterprises and individuals accounts for 42 percent of salary costs; that is more then they should have to bear.
This article was edited by Rose Scobie
