China | Property cushions state coffers from tax cuts, VAT switch
Model market: China's surging property prices helped prop up government revenue in 2016. Photo: Reuters
Model market: China's surging property prices helped prop up government revenue in 2016. Photo: Reuters

Property cushions state coffers from tax cuts, VAT switch

Fiscal revenue rises at slowest in almost three decades as government pushed through its taxation overhaul despite downward pressure on the economy

January 24, 2017 6:35 PM (UTC+8)

China’s fiscal revenue grew at its slowest pace in almost three decades as the government pushed through its tax overhaul despite downward pressures on the economy. State coffers would have been in a much more dire position but for the surging property market.

The government collected fiscal revenues of 15.96 trillion yuan (US$2.3 trillion) in 2016, up 4.5% from a year earlier, according to Ministry of Finance data. Spending grew 6.4% year-on-year to 18.78 trillion yuan. In 2015, fiscal revenue was 15.22 trillion yuan, against expenditure of 17.58 trillion yuan.

Tax revenues grew 4.3% to 12.04 trillion yuan in 2016, accounting for 82% of total general public receipts.

There was a large pick up in value-added tax as the government finally lowered the curtain on business tax as part of reforms that started in 2012. VAT receipts surged 31% to 4.07 trillion yuan while business tax dwindled 40% to 1.15 trillion yuan.

Businesses saved more than 500 billion yuan in levies during 2016, as the business tax was fully replaced with VAT from May 1, 2016. The old business tax was a levy on gross revenue, while VAT is based — simply put — on the difference between the price at which goods and services are sold and the cost of producing them.

The Ministry of Finance estimates that the new VAT regime will provide tax relief to the tune of 700 billion yuan in 2017, equivalent to around 1% of annual gross domestic product.

Corporate income tax, the second-largest source of tax revenue, grew 6.3% to 2.89 trillion yuan as a 27% surge in taxes paid by property developers compensated for falling receipts from the industrial sector.

The nation’s booming property market also fueled a surge in household income tax receipts. Individuals paid 17.1% more, or just over 1 trillion yuan, thanks to a 31% increase in levies on gains from apartment sales.

Social welfare will remain a key priority for the government despite its falling revenue. Spending on community services, healthcare and social security all grew by more than 10% in 2016.

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