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China's fiscal revenue, which is largely decided by the country's economic growth, is expected to expand 20 percent this year.
Since the second half of last year, the central government has taken a series of measures to prevent the economy from becoming overheated.
One measure to cool it down is an order to curb blind investment in the steel, cement and aluminium industries.
The issuance of long-term treasury bonds was slashed from 140 billion yuan (US$16.9 billion) last year to 110 billion yuan (US$13.3 billion) this year.
The government also cut the tax rebate rate by an average of 3 percentage points since the beginning of this year.
However, other measures are "expansive" policies.
The trial implementation of the value-added tax system reform in Northeast China helps reduce the tax burden for companies.
The timely payment of tax rebates stimulates exports.
Impacted by these measures, the country's economy is likely to grow 8.5 percent to 9 percent this year.
The good economic situation lays a solid foundation for a high fiscal revenue growth.
But it becomes increasingly difficult to maintain such high revenue growth rates as were recorded during the past several years.
In 2004, there are almost no policy factors which can help increase revenue.
However, there were policy factors which led to revenue reduction.
A tariff cut, tax favours for re-employment, western development strategy, renovation of Northeast China and high technology industry, as well as "tax-for-fees" reform in the rural areas, will reduce revenue.
The potential to increase revenue by adding to tax collection is also becoming small, because the growth in revenue surpassed that of economy for many years.
For expenditure, the figure is very high due to the fast growth in both revenue and growth during the past years.
As a result, the fiscal situation will face big pressure if the government does not expand the deficits and the amount of treasury bond issuance.
The stress mainly comes from the increasing expenditure for sectors relating to social security.
The government will have to ensure proper expenditure growth in science and technology.
It will also be responsible for raising employees' salaries, increasing subsidies for the low-income urban dwellers, and supporting economic reforms.
The expenditure growth is difficult to control. The amount of deficit is also difficult to be reduced.
Based on the domestic and international situations, the central government decided to continue the pro-active fiscal policy this year.
The levels of debts and treasury bonds issuance remained the same as last year.
The budgeted debt for this year is 319.8 billion yuan (US$38.5 billion), and the planned treasury bond issuance is 702.2 billion yuan (US$84.6 billion).
But along with the economic expansion, the ratio of debts and the amount of treasury bond issuance to the total gross domestic product (GDP) dropped.
The focus of the pro-active fiscal policy has also shifted from expanding the economy and stimulating demand to supporting reforms, adjusting structures and public services.
The fiscal budget for 2004 has the following characteristics:
The growth in revenue is close to that in expenditure, suggesting the government tries to control the amount of deficits.
The budgeted national fiscal revenue is 2,357 billion yuan (US$284 billion), an increase of 8.7 percent, while the budgeted expenditure is 2,676.8 billion yuan (US$322.5 billion), an increase of 8.8 percent.
The central finance gives key attention to farmers, agriculture and rural issues.
Except taxes on tobacco, the government will eliminate the tax on special agricultural products.
The average agriculture tax rate will be reduced by more than 1 percentage point each year.
The government will actively push forward the reform in the grain circulation system to offer direct subsidies to farmers.
It will arrange 39.6 billion yuan (US$4.8 billion) for the "tax-for-fees" reform in rural areas.
It will also increase input in agriculture infrastructure projects, ecological projects and poverty reduction.
The fiscal expenditure gives special attention to employment and social security.
Central and local government will increase their input to create jobs.
Based on the experiences gained from the social security reform experiment in Liaoning Province, the reform will expand to the provinces of Heilongjiang and Jilin.
The fiscal expenditure will emphasize economic structure adjustment and co-ordinating economic development between different areas.
Favourable fiscal policies and tax favours will be given to high-tech companies as well as small- and medium-sized companies.
Reshuffling of large State-owned companies will be backed.
Fiscal and tax policies for the renovation of the old industrial base in Northeast China and western development strategy will be carried out.
Expenditure on items such as building offices and training centres for government departments will be controlled.
From this year, tax system reform will be started step by step.
The central and local government will arrange sufficient tax rebates for companies which sell products abroad.
The central government will also beef up efforts to pay the delayed tax rebate payment to export companies.
The value-added tax reform will be carried out in Northeast China on a trial basis.
Then, based on the results, the government will later implement the system throughout the country.
China is now practicing a production-based value-added tax system.
Under the system, fixed assets are classified as consumer goods and are subject to the tax.
As a result, enterprises may not claim tax deductions for purchases of fixed assets such as equipment and machinery.
The system places a heavy burden on enterprises wanting to increase their fixed assets investment, especially for capital and technology-intensive enterprises.
The system thus poses a hurdle to economic restructuring.
For many years, experts suggest the government should replace the present system with a consumption-based one, which allows companies to deduct tax when importing new machinery and equipments.
They also suggest the new value-added tax system should be expanded to cover more activities currently subject to business tax such as transportation and telecommunications.
From this year, the new tax system will be implemented in eight industries in the old industrial base in Northeast China.
The government will prepare for the reform of the enterprise income tax law.
The country is now practicing dual-track enterprise income tax policies for domestic and foreign-funded companies.
The income tax rate for domestic companies was 33 percent and 17 percent for foreign-funded companies.
The tax incentives for foreign-funded companies played an important role in attracting foreign investment when the Chinese market was not open enough.
The preferential policies also led to a serious loss of the country's tax income.
However, the tax incentives resulted in more advantages than disadvantages, because the incentives co-existed with such non-tax trade barriers such as higher tariffs and import quotas enjoyed by domestic companies.
Now that China has become a member of the World Trade Organization, the country will have to gradually remove trade barriers.
Meanwhile, the country will open more sectors including banking, insurance, telecommunications, trade and tourism to foreign investors.
The more open market needs a fair tax environment for domestic and foreign-funded companies so that they could compete equally.
(China Daily April 12, 2004)
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