China’s tax revenue increased faster than economic growth for the first half of 2018, raising doubts about the effectiveness of the government's tax reduction initiative. Writing at
Beijing Youth Daily, columnist Tan Haojun claims the fast increase is a result of strong performance by State-owned companies and does not come at the expense of small-and micro-businesses.
Government data show that value-added tax and corporate income tax rose by 16.6 percent and 12.8 percent year-on-year respectively, both beating the overall economic growth of 6.8 percent. Though the tax burden on businesses seems to be increasing, the tax increase is determined by multiple factors, aside from the primary element of economic growth, Tan says.
The structure of economic growth has a significant influence on tax revenue growth, he says. According to the data from China’s Ministry of Finance, State-owned enterprises had together nearly 28 trillion yuan (US$4.09t) in revenue, up 10.2 percent year-on-year, with over 1.7 trillion yuan (US$248b) in profits, increasing by 21 percent. The strong performance of SOEs drives the tax revenue growth, he says, inferring that the growth does not come at the cost of an aggravated burden on micro-businesses.
The columnist also says upstream firms – mainly state-owned – based their growth on price hikes of their products, which increased costs for downstream businesses. Given the consumer market hasn't improved significantly and the prices of consumer products are low, this is expected to squeeze the profits of downstream firms and could even create an existential threat to microbusinesses. Taxes on those should be reduced further, Tan argues.
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