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Slow Down in Nation's Tax Revenue Growth Expected

China's fast tax revenue growth is expected to slow down in the remaining months of this year.

Zhang Peisen, a senior expert at the Taxation Research Institute of the State Administration of Taxation (SAT), said the fast tax revenue growth in the first quarter could not be maintained throughout the year.

Since the second half of last year, the central government has taken a series of measures to prevent the economy from becoming overheated.

These measures include raising the bank reserve requirement, tightening loans to the steel, aluminum and cement industries, and beefing up management of development zones.

"The measures will have a great impact on the tax revenue," Zhang said.

Meanwhile, there are few policy factors, which can help increase tax revenue this year, he said.

But a number of other policy factors carried out this year would lead to a reduction in tax revenue, he said.

Hao Zhaocheng, deputy director of the SAT, said earlier this year the government would encourage unemployed people to establish their own companies by exempting them from business tax, urban construction tax, additional education tax and personal income tax for three years.

For companies that help create jobs for the unemployed, the government will offer tax favors including exemption of business tax and enterprise income tax, based on their contributions, he said.

Starting this year, the government began to implement a new value-added tax policy in the old industrial bases in Northeast China on a trial basis, Zhang said.

The new tax policy allowed companies in the area's eight industries, including oil and car manufacturing, to claim value-added tax deductions when buying new machinery, he said.

China is practicing a production-based value-added tax system.

Under this system, fixed assets are classified as consumer goods and are subject to the tax, he said.

As a result, enterprises could not claim tax deductions for purchase of fixed assets such as equipment and machinery.

The system placed a heavy burden on enterprises wanting to increase fixed-asset investment, especially for capital- and technology-intensive enterprises. This is why the government has decided to reform the system step by step.

The country also continued tax and fee reform in its rural areas to further reduce the financial burden of farmers, Zhang said.

Except taxes on tobacco, the government has eliminated the tax on special agriculture produce across the country, he said.

The government has also lowered the average agriculture tax rate by 1 percentage point, he said.

"The country's tax revenue is likely to grow 16 to 17 percent this year," Zhang said.

During the first quarter of the year, China's tax revenue grew a year-on-year 25.4 percent to 627.8 billion yuan (US$75.6 billion), SAT figures indicate.

Income from all major tax categories increased rapidly during the period, with value-added tax rising 22.9 percent to 206.4 billion yuan (US$24.9 billion) and business tax rising 21.1 percent to 90.9 billion yuan (US$11.0 billion), the SAT said.

Income tax from domestic companies rose a year-on-year 34.8 percent to 76.3 billion yuan (US$9.2 billion), while personal income tax rose 21.4 percent to 46.6 billion yuan (US$5.6 billion), it said.

Import tariffs rocketed 44.9 percent to 89.1 billion yuan (US$10.7 billion).

SAT said the fast tax revenue growth was mainly because of the country's fast economic development.

(China Daily April 14, 2004)

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