China's tax revenue grew 26.2 per cent in the first half of the year, the State Administration of Taxation (SAT) said yesterday.

Tax revenue, exclusive of tariffs and agriculture tax, stood at 1,229.1 billion yuan (US$148.1 billion) during the January-June period, an increase of 269.3 billion yuan (US$32.4 billion) from the same period a year ago.

Income from value-added tax and business tax rose a year-on-year 22.3 per cent during the period, and income tax from individuals and companies was up 28.2 per cent.

Import tariffs shot up 41.4 per cent during the first six months, continuing rapid growth momentum from last year.

A SAT spokesman said the rapid tax revenue growth during the first half of this year was mainly because of the country's sound economic development.

"The country's industrial output continued to grow at a fast pace, consumption rose stably... the national economy has entered a rapid development track," the spokesman said.

"This lays a solid foundation for tax revenue growth," he said.

Increased efforts by tax departments to collect taxes also contributed to the fast revenue growth, he said.

However, experts said the fast revenue growth could not be maintained throughout the year, because of the central government's measures to cool down the economy.

Ni Hongri, a senior researcher with the State Council's Development Research Center said this year's tax revenue was expected to grow about 15 per cent.

The rate was close to the 16 per cent growth predicted by Zhang Peisen, a researcher at the Taxation Research Institute of the State Administration of Taxation (SAT).

The slower tax growth rate was mainly because of a slow-down in the country's economic growth predicted for this year, both Ni and Zhang said.

"Economic growth usually contributed more than 60 per cent to the revenue growth," Zhang said.

Since the second half of last year, China has taken a raft of measures to cool the economy, including raising bank reserve requirements three times, curbing unwanted fixed asset investment projects and issuing tighter restrictions on new projects in "overinvested" industries such as property and steel.

"The measures will have a great impact on the country's economic growth and the revenue growth as well," Ni and Zhang said.

A number of policy factors are also leading to a slowdown in revenue growth. "These factors include value-added tax system reform, which is expected to be kicked off later this year, and tax and fees reform in rural areas," Zhang said.

The government has already announced that it would continue tax and fee reform in rural areas to further reduce the financial burden of farmers, he said.

Except for taxes on tobacco, the government will eliminate the tax on special agriculture produce across the country this year.

The government would also lower the average agriculture tax rate by 1 percentage point each year and eliminate the tax within five years, he said.

From later this year, the government would start 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 allows companies in eight industries - including oil and car manufacturing in the provinces of Heilongjiang, Jilin and Liaoning - to claim tax deductions when buying new machinery and equipment, he said.

(China Daily July 9, 2004)