Chinese Tax Revenues May Recover In 2009

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

11 August 2009

Chinese tax revenues could rise by as much as 10% in 2009 despite the fact that the overall tax take declined in the first half of the year.

Bai Jingming of the finance ministry’s research institute told China’s Financial News in an interview that tax revenue would be restored to “normal growth” levels this year and could possibly exceed the government’s target of 8% growth for 2009.

Official figures for the first half painted a surprisingly grim picture of China’s public finances, and showed that tax revenues fell by 2.4% in the first six months following successive record-breaking years for tax collection. However, economic growth has been stronger than expected this year, and rising prices in several industrial sectors could bolster the government’s tax take.

A conflicting report by Beijing’s Economic Observer has suggested that the slump in tax revenues was much deeper than the government’s figures claim and was more in the order of 6% compared with the first six months of 2008. If correct, it would be unlikely that the government’s collection target for the year will be met, and more pressure could be put on the main tax authority, the State Administration for Taxation (SAT), to enforce the country’s tax laws, especially in the area of corporate tax.

Recently, the SAT has increased its focus on international tax issues, in particular transfer pricing, and local tax authorities have been ordered to monitor cross-border transaction much more closely for signs of evasive activities.

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