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China To Set New Tax Revenue Record

by Mary Swire,, Hong Kong

21 December 2006

As the Chinese economy continues to go from strength to strength, total tax revenues collected by the government will hit yet another new record of almost 4 trillion yuan (US$512 billion) this year, Finance Minister Jin Renqing has revealed.

The government has already collected 3.61 trillion yuan in revenues this year, and Jin told an annual fiscal conference this week that the final tally for 2006 will likely be about 3.9 trillion yuan. This will be almost 25% higher than the revenues collected at the same stage last year, and is 70 billion yuan more than Beijing had budgeted for.

Despite the huge glut in revenues, Jin explained that "China's fiscal revenue expansion is quite stable," and the government will continue its cautious fiscal policy next year. However, it plans to ramp up spending on rural development, described by Jin as the "weak link" in China's economic development. There will be a particular focus on public health spending in this context. Just under half of all government investment was chanelled towards rural development during 2006, 3% up on 2005.

Jin said that there will only be a "moderate" decline in the government's budget deficit, by about 5 billion yuan compared to last year's 295 billion yuan.

Although China's economic growth is likely to exceed 10% this year, the government has used tax policy to take the heat out of certain areas of the economy, particularly the real estate sector, where price inflation has been rampant and the government is keen to avert a property bubble. Growth has since moderated somewhat from 11.7% in the second quarter to 10.7% for the first nine months. The State Development and Reform Commission expects GDP growth of 10.5% for 2006.

Beijing has also been using the tax system to address the growing disparity between rich and poor by, among other polices, expanding the consumption tax net to cover more luxury goods, and increasing the threshold at which income tax becomes payable.

Tax has also played a larger part in shaping environmental policy in China, with export tax rebates for 'dirty' industries such as steel making reduced or cancelled.

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