On January 20th the Ministry of Finance of China released a statement announcing that the government’s revenue reached RMB 10.17 trillion for the 2011 year, having grown by 24.8 percent compared to the results seen in 2010.

The recorded fiscal revenues were comprised of RMB 5.13 trillion collected by the central government and an additional RMB 5.24 trillion of collections by local governments around the country. According to the Ministry of Finance, local governments’ revenues were up by29.1 percent in 2011 and the central government’s revenue rose by 20.8 percent.

Tax collections in China rose by 22.6 percent in 2011 and contributed RMB 8.97 trillion to the revenue total. Non-tax revenues amounted to RMB 1.4 trillion of overall collection, and were recorded to be approximately 41.7 percent higher than in the previous year.

Collection of corporate income taxes accounted for RMB 1.68 trillion and was recorded to have increased by 30.5 percent throughout 2011. Revenues from personal income taxes rose to RMB 605.4 billion and were up by 25.2 percent compared to the previous year.

The Ministry of Finance of China attributed the increasing revenues to the country’s high economic development levels in 2011, saying that GDP growth was 9.2 percent for the year.

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On December 26th at a budget meeting held in Beijing, Chinese policymakers outlined the government’s plans for spurring economic growth in 2012, confirming that public spending will be increased and new tax changes will be instated to help small businesses in the country.

Throughout 2012 the government will increase spending on social security, housing projects, education, healthcare, and other measures aimed at boosting economic productivity and national welfare. During a speech delivered at the meeting the Vice Premier Li Keqiang said that in 2011 government spending grew by 24.3 percent compared to 2010, to a total of RMB 8.9 trillion, while the government’s total revenues rose by 26.8 percent to RMB 9.73 trillion.

While giving a speech at the meeting the Finance Minister Xie Xuren said that China will aim to help small and medium sized businesses in 2012 by increasing the threshold for payment of value added taxes and corporate income taxes. New policies will also be instated over the next four years to halve the rate of corporate income taxes faced by small businesses.

In order to provide greater access to capital to small companies, the government will also drop stamp tax on lending contracts issued by banks for the next three years. In an effort to aid micro sized businesses the government will also stop collection of 22 separate business administration fees.

The new tax measures are aimed at encouraging increasing the number of small businesses in China, and to stir up greater consumer demand in order to compensate for waning economic conditions in China’s main export partners.

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On December 19th the State Administration of Taxation of China revealed the Vehicle and Vessel Tax Law, stating that from January 1st 2012 new taxes will be instated on all vehicles in the country.

The new tax will be levied on passenger vehicles with engine sizes above 1L and with seating capacities of less than nine passengers. The tax rate begins at RMB 300 per year for the smallest cars, and will reach up to RMB 5 400 for cars with engine capacities above 4L. The tax rates have been balanced to encourage drivers to use cars with engines below 2L in size. Electric passenger vehicles and cars utilizing efficient hybrid technologies will not be subject to any ownership tax.

Commercial busses will be taxed a maximum of RMB 1 440 per year. Trucks and other heavy duty commercial vehicles will be levied at up to RMB 120 per ton of curb weight. Any trailers attached to the truck will be charged at a rate equal to half of the truck’s tax rate per ton.
Motorcycles and other small two wheeled vehicles will see a maximum tax rate of RMB 180.

Currently, vehicle taxes in China are calculated on the seating capacity. According to the State Administration of Taxation, nearly 87 percent of all passenger vehicles will not face a higher tax obligation under the new tax regulation. Owners of approximately 28 percent of all trucks and motorcycles would also not see higher tax liabilities.

The State Administration of Taxation claims that the new measures will encourage taxpayers to use more efficient technologies, and aid the push towards low emissions vehicles.

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On October 26th the State Council of China issued a statement revealing that it has approved a new pilot program to replace the national turnover tax with a simpler value added tax (VAT).

The new tax will be instated from January 1st 2012 for transportation and service firms operating in the Shanghai region. If the program is deemed to be a success, the government will incrementally expand the tax across other regions of the country when economic conditions allow.

Under current tax rules in China, firms operating in the service sector are levied a turnover tax on their annual sales revenues, while manufacturing firms across the country pay a VAT of up to 17 percent. Under the new tax trial, service sector firms will be subject to the same tax treatment as manufacturing firms. The State Council indicated that as the pilot program progresses, service sector firms will see their VAT rate lowered to between 6 percent and 11 percent.

According to local tax experts, the new trial is a concentrated effort by the government of China to ease the fiscal burdens on small firms operating in the country. Commenting on the program Wang Han, an analyst at Industrial Securities in Shanghai, said that the new system will be especially beneficial to companies undergoing financial trouble under the current credit crunch and tightening lending conditions.

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In a statement released on October 10th the State Council of China revealed that the government will soon implement a new set of resource taxes, aimed at the encouraging taxpayers to use more ecologically friendly technologies.

From November 1st 2011 the government will levy a tax of up to 10 percent on the sale of crude oil and natural gas on the local market of China. Cocking coal will also be subject to a tax of up to RMB 20 per ton, with other grades of coal seeing a maximum tax rate of RMB 5 per ton. Several other taxes will be introduced on the sale of a metal and non-metal ores produced in China.

The government has not yet released forecasts on the cumulative tax revenues that will be raised by the new measures. However, local energy industry analysts have estimated that tax revenues collected from the country’s three major oil companies alone would reach approximately up to RMB 44 billion per year.

The taxes will be levied and collected by the local governments of the area where the resources are sold. It is believed that the tax will greatly aid the financial positions of the local bodies, especially in poorer areas of China.
The new tax has already been implemented on an experimental basis in the oil-rich Xinjiang region in the June of 2010. The initial regional trial tax was deemed to have been a success by the State Council of China, and was later expanded to cover 12 more regions in the country.

According to the newly published statement the government will soon instate even further taxes on resource sales, although it did not specify any details.

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