China's tax revenues grew by 21.7 per cent year-on-year during the first half of this year.

Tax revenues exclusive of tariffs and agriculture tax stood at 1.58 trillion yuan (US$190.5 billion) during the January-June period, an increase of 281.9 billion yuan (US$34 billion) or 21.7 per cent from a year ago, the State Administration of Taxation (SAT) said yesterday.

Peng Longyun, a senior economist with the Asian Development Bank, said the slower tax revenue growth, compared with that of last year, was not surprising.

"The country's economy is destined to slow down," he said.

The National Bureau of Statistics is scheduled to release the major economic figures next week. But Peng estimated the country's gross domestic product would grow about 9 per cent during the first half.

China's tax revenues grew 25.7 per cent last year, and its economy grew 9.5 per cent.

The government's macro-control measures, aimed at curbing over-investment in sectors such as cement and steel, was another reason for the slower revenue growth, Peng said.

The SAT did not provide detailed tax figures from those red-hot sectors.

It said revenue from value-added tax, consumption tax and business tax rose 20 per cent to 832.7 billion yuan (US$100.3 billion) year-on-year, while income tax from companies and individuals rose 38.2 per cent to 427.4 billion yuan (US$51.5 billion).

The nation also reported a 71.4 per cent decline in stamp duty, due to the slumping stock market and a reduce in duty rate, as well as a 3.9 per cent drop in automobile purchasing tax, because of lower prices and reduced sales.

Ni Hongri, a senior researcher with the State Council Development Research Centre, said the tax revenue growth for the first half was stable and will continue to grow stably for the rest of this year.

"The country's economy will continue to grow at a fast rate," she said and the government will continue to strengthen tax collecting.

The SAT's Liu Taiming said in April that the government would increase inspection on nine areas, such as the real estate industry and steel and cement companies this year to see to make sure they are paying their proper dues.

Zhang Peisen, a senior researcher with the Taxation Research Institute under the SAT, said there are always some companies seeking ways to avoid paying taxes.

The SAT figures indicate that China's tax departments inspected 1.23 million taxpayers last year, which helped bring in overdue taxes and fines totalling 36.8 billion yuan (US$4.4 billion).

But the government ought not to rely too much on collection methods to increase revenue, said Zhang,

Only as companies prosper can they significantly contribute to the State's coffers, he said.

In this regard, the government should spread the value-added tax reform as early as possible, said Zhang.

China has levied a production-based value-added tax since 1994. Under the tax system, fixed assets are classified as consumer goods and are subject to the tax.

In order to increase companies' internal vitality and competitiveness, the country last year began to shift the tax system from production-based to consumption-based on a trial basis in the northeastern provinces of Heilongjiang, Jilin and Liaoning.

(China Daily July 12, 2005)