Corporate Tax Take Up 35% In China Last Year

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

19 January 2006

China's State Administration of Taxation this week published an analysis of last year's record tax take of more than 3 trillion yuan, showing that corporate tax receipts rose 35% on the back of sharply increased earnings.

Tax receipts were up 20% in total, an increase of 514.8 billion yuan over the previous year. Revenues from domestic value-added tax, consumption tax and sales tax accounted for 49.5%of the increase. Total income tax revenues from domestic and overseas-funded firms, and individuals contributed 34.8 percent to the overall tax revenue.

Tax revenues from east China, the country's richest area, amounted to 2.1834 trillion yuan, up 19.2%, or 70.7% of the total, while revenues from central China stood at 481.7 billion yuan, up 22.4% year on year and accounting for 15.6% of the total. West China registered 421.5 billion yuan in taxation revenues, up 21.7%, accounting for 13.7% of the country's total.

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).

At a press conference, officials gave further details of their approach to cooling the booming property market, saying that the tax authority was considering unifying property and land taxes. Earlier this week, Su Kexing, vice director general of the Land Use Department of the Ministry of Land and Resources told a Beijing seminar that new legislation will ensure residents of basic property will pay no property tax, while owners of second homes, villas and luxury residence will be taxed heavily.

Last year, the government attempted to head off a real estate bubble by raising home-loan interest rates, limiting urban demolition and levying taxes on housing sales. However, Mr Wang said that despite these efforts, the amount of housing available to low and middle-income families was inadequate.

Officials also reiterated the government's intention to end preferential tax treatment for foreign companies, although this announcement has been made many times now, reflecting differences among ministries over the timing of any changes.

Beijing's eleventh five-year plan covering 2006-2010 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.

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