China Will Use Higher Tax Revenue To Bolster Economy

by Mary Swire, Tax-News.com, Hong Kong

06 September 2001

News of higher tax collections released recently by China's State Administration of Taxation has encouraged ministers to plan a fifth straight year of fiscal stimulation to the economy.

Last week it was reported that the country collected 38.4 billion yuan (US$4.62 billion) of personal income tax and 16.3 billion yuan (US$1.96 billion) of tax on interests of individual's bank deposits during the January-July period, an increase of 32 per cent and 132.2 per cent, respectively, compared with the same period last year. This suggested that urban and rural residents' income rose considerably, since tax on wages comprised more than 40 per cent of the total income tax.

Now Finance Minister Xiang Huaicheng has told the Financial Times that the government would inject another Rmb150bn ($18bn) into the economy next year to offset the slowdown in the global economy and keep the country's growth rate above 7%.

The finance minister said China could afford the additional spending because of a strong increase in government revenues this year. The finance ministry will spend the money on environmental protection projects, infrastructure improvements and increases in government salaries. "We will continue to adopt an expansionary fiscal policy," he said.

Mr Xiang said export growth had slowed sharply in recent months, but that domestic consumption had risen by 10.2% in the first half of the year, with investment 8.4% higher. Confirming the better figure for tax collections, he said the government had seen a big increase in revenues on the back of the robust growth in the economy this year and had no immediate plans to issue additional bonds to fund its fiscal expansion programme.

Central Bank Governor Dai Xianglong told the newspaper, whose journalists were on a visit to Beijing, that China's hard currency reserves had risen strongly this year by $24.4bn to a total of $190bn. The Governor also denied that China was planning to issue bonds: "A lot of economists said that China is planning to issue another Rmb50bn. But I can assure you that the government has no such plan," he said.

Recommended