China's Booming Economy Pushes Tax Collection To New Levels

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

05 January 2006

China's booming economy has ensured that the authorities have collected a record amount of tax in 2005, as recently-released figures show that annual revenues exceeded 3 trillion yuan (US$380 billion) for the first time.

Statistics published by the State Administration for Taxation reveal that revenues, excluding customs duties and agricultural levies, greatly exceeded government forecasts last year as the final tally reached 3,087 billion yuan.

Beijing had expected tax revenues to increase by 11%, to 2.93 trillion yuan, but rapid economic growth, which has seen China's GDP expand at a rate in excess of 9% per year in the past two years, has pushed revenues above the 3 trillion yen mark.

Similar levels of economic growth are expected to push revenue collection higher still in 2006, when China's tax revenue is estimated to rise 17.5% to 3.61 trillion yuan (US$450 billion).

Beijing's eleventh five-year plan covering 2006-2010 also envisages revenue growth fuelled by economic expansion in the longer term, forecasting that China's tax revenues will grow at an average annual rate of 13.3% over the period as nominal GDP growth sustains an estimated 8% per annum. By the end of 2010, tax revenues are expected to have reached 5.55 trillion yuan.

China is set to introduce a number of tax reforms in the coming years as the government attempts to modernise and streamline the tax system. One of the most important of these is corporate tax reform, which will see the tax rates paid by domestic enterprises and foreign-backed business unified, most likely at a rate of or near 24%. Currently, foreign invested companies pay tax at a rate of 11% to 14% versus 24% for domestic firms.

Speaking last month, China's Finance Minister, Jin Renqing revealed that the government would also be abolishing the unpopular farm tax ahead of schedule.

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