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Higher fiscal income helps adjustments in tax policies
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China's fast growing fiscal income makes it possible for the government to adjust tax policies to bolster economic growth and consumption in the second half of this year, economists said yesterday.

Li Maoyu, an analyst with Changjiang Securities, said China's fiscal balance sheet in the first half demonstrated there were opportunities for more tax breaks for companies and individuals to mitigate the pressure of rapid price increases.

"The abundant fiscal reserve in the first half constitutes a solid base for tax breaks for both companies and individuals," Li said.

China's income rose 33.27 percent in the first six months to 3.48 trillion yuan (US$508 billion) and expenditure settled at 2.29 trillion yuan during the same period, leaving a surplus of 1.19 trillion yuan in June, the Ministry of Finance said.

China has set a fiscal income target of 5.85 trillion yuan for the entire year, which means 59.5 percent of the target has been met.

Expenditure up to June only accounted for 37.6 percent of the budget which was set at 6.07 trillion yuan.

"China's fiscal policies should play a bigger role in navigating economic growth," said Tao Dong, a Credit Suisse economist. "The increase of tax rebates for textile and garment exports should spur other moves, and be followed by measures such as a reduction in income tax for companies and individuals."

Peng Ken, an economist with Citigroup, also said the government should raise the tax threshold for small and medium-sized businesses and personal income.

"This could provide a buffer for the potential negative wealth effect of corrections in the stock and housing markets and boost spending," Peng said.

China's economic growth eased to 10.4 percent in the first six months, slowing from 10.6 percent in the first quarter and 11.9 percent last year due to a slower rise in exports and investments.

The tax regulator raised export tax rebates on textiles and garments from 11 percent to 13 percent from this month. This was seen as a move to rescue exporters hurt by higher costs and weak demand overseas.

To prevent a sharp economic slowdown and boost consumption, some experts have suggested the government create banks catering for small and medium sized firms. They also said China should raise the individual income tax threshold from 1,600 yuan to 5,000 yuan.

(Shanghai Daily August 8, 2008)

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