Data released by the State Taxation Administration on September 20 shows that tax revenue collected by tax authorities in the first eight months of this year, excluding customs-collected import VAT, consumption tax, tariffs, and vessel tonnage tax, and not netting out export tax rebates, grew 5.9 percent year on year. This figure is 0.5 percentage points higher than the 5.4 percent GDP growth recorded in the first half of the year.

According to Huang Lixin, director of the Taxation Science Research Institute under the State Taxation Administration, tax revenue is calculated at current prices, and this year's tax growth has generally remained broadly consistent with economic expansion. He attributed the slightly faster pace of tax growth compared to GDP growth to three main factors.

Price dynamics

The first factor is rising prices. Huang noted that the Producer Price Index, which is closely linked to tax revenue, shifted from negative to positive territory in March this year, ending a 41-month streak of declines. The index has since shown an overall upward trend, accumulating a 2 percent increase over the first eight months, which has driven faster growth in tax revenue calculated at current prices. However, due to the influence of the GDP deflator, price factors have had differing effects on tax revenue and GDP growth.

Capital market activity

The second factor is capital market activity. Trading in the capital markets has spurred growth in stamp duty on securities transactions, corporate income tax, individual income tax, and domestic value-added tax. The markets have been generally active this year, contributing to faster growth in related tax categories and industry tax revenue. Stamp duty on securities transactions alone surged 82 percent, and tax revenue from related industries has also been boosted by higher returns on stock market investments made by enterprises. Huang explained that securities trading and the investment gains it generates represent transfers of ownership of existing assets, not value created by current production activities. While these transactions directly increase tax revenue, they contribute little to current-period GDP.

Policy adjustments

The third factor involves policy adjustments. The Value-Added Tax Law and its implementing regulations took effect on January 1 this year, accompanied by corresponding adjustments to certain tax policies. Additionally, some tax incentives that do not align with high-quality development or current economic conditions have been further regulated, which affects tax revenue without directly boosting GDP.

Chen Binkai, vice president of Central University of Finance and Economics, pointed out that tax revenue is predominantly contributed by large enterprises, while small and micro enterprises benefit from numerous tax preferential policies, resulting in their overall tax burden being significantly lower than that of large corporations. Tax data reveals that in the first eight months of this year, the top 10,000 enterprises by tax payment scale contributed nearly half of all tax revenue, and the top 1 million enterprises contributed 90 percent. In contrast, other enterprises, including small and micro businesses, accounted for only about 10 percent of total tax revenue.

Chen emphasized that China has implemented a series of tax and fee reduction policies benefiting small and micro enterprises in recent years. Examples include exempting small-scale VAT taxpayers with monthly sales below 100,000 yuan from VAT, and reducing the effective corporate income tax rate for qualifying small and low-profit enterprises to 5 percent. These measures, he said, have played a crucial role in easing the tax burden on the vast number of small and micro enterprises.