Chinese Tax Collection Powers Ahead

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

02 April 2002

Chinese State Administration of Taxation Commissioner Jin Renqing said that tax revenue grew 11.6% year on year in the first quarter of 2002 to 341.2 billion yuan (about US$45bn). Revenue from income taxes levied on foreign firms grew rapidly between January 1 and March 20 while taxes generated from state-owned and private domestic firms declined.

The Beijing press puts the increase down to economic growth, but had no explanation for the decline in domestic tax collection. Value-added tax, consumer tax and business taxes accounted for about 80% of total revenue in the period, Mr Jin said.

A plans to boost revenue from tax collection by scrapping reduced tax rates for foreign firms was announced by Mr Jin in January, but has not yet been implemented.

The reduced 15% tax rate applies to foreign companies in China's special economic zones, such as Shanghai's Pudong district, and in certain designated industries. Domestic firms typically pay 33% income tax and many have called for a levelling of the playing field, within the context of the mainland's joining the World Trade Organisation.

Jin Renqing, as commissioner of the State Administration of Taxation, has been struggling to raise tax revenues to keep pace with increasing government expenses resulting from efforts to stimulate economic growth and domestic demand and develop China’s infrastructure. Under central planning, taxes were not necessary since the government owned industry assets, but with market reform, state enterprises are increasingly responsible for their own profits and the government must make up for lost revenue. One major difficulty lies in getting the public accustomed to the idea of taxation.

Since the government has been fueling its battle against economic slow-down with tax revenue, it has become imperative for Jin to assure the professional proficiency of China’s one million-strong tax office personnel, and to tackle the tax bureaucracy’s inefficiencies and weak links manifested in overlapping organizations, insufficient management, inadequate supervision, and high overhead costs.

Mr Jin's efforts seemed to be paying off when last year's tax revenue came in at a record 1.52 trillion yuan, up an annual 19.8%.

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