Tax revenue growth slows in Q3 as cuts take effect

China saw notable tax reductions in the third quarter as proactive fiscal policies took effect, strengthening corporations’ investment confidence and domestic consumption, experts said.

In the period July to September, the government’s tax income increased 8 percent year-on-year, sharply down from the 13.1 percent and 17.8 percent growth reported in the first and second quarters respectively, as a result of the tax cuts issued earlier this year, the State Taxation Administration said on Friday.

The administration’s data showed that in the first three quarters, total tax income reached 11.23 trillion yuan ($1.62 trillion), representing year-on-year growth of 13.2 percent.

Taxes from internet service companies increased at the fastest pace among all sectors, with 33.3 percent growth in the first three quarters, followed by the software and information technology service sector.

Zheng Xiaoying, deputy head of the administration’s revenue planning and accounting department, said, “The slowing of tax growth was mainly because of the policies released earlier, especially since the value-added tax reduction starting from May 1.”

The VAT reform cut about 238.6 billion yuan in taxes, she said.

“The VAT reform has boosted enterprises’ enthusiasm for increasing investment, especially in the manufacturing sector,” said Lin Feng, deputy head of the State Taxation Administration’s goods and services department.

In addition, the country’s export tax rebates — a measure implemented to cut export companies’ costs — hit 1.13 trillion yuan at the end of September, according to official data.

According to officials from the Ministry of Finance, a draft of the special deduction plan for personal income tax will be released soon. The new rules are set to take effect from Jan 1 next year, in a move to boost domestic consumption further.

The minimum threshold for personal income tax rose from 3,500 yuan to 5,000 yuan per month, or 60,000 yuan per year, on Oct 1. Under the new model, those with monthly salaries ranging from 5,000 yuan to 20,000 yuan saw their tax bill drop by over 50 percent. Those with monthly salaries ranging from 20,000 yuan to 80,000 yuan pay 10 percent to 50 percent less than before.

Individual income tax is the third-largest contributor to China’s total tax revenue, following value-added tax and enterprise income tax. Last year, China collected 1.2 trillion yuan in individual income tax, accounting for 8.3 percent of the country’s total tax revenue.