Taxpayers hand in files at a tax bureau in Nanjing, Jiangsu province. China is gearing up tax reforms including those to personal income tax and value-added tax, to help people on low-incomes and companies, especially those in tertiary industries. [Photo / China Daily]

Tax reforms may impose greater pressure on the nation's finances

BEIJING - China's fiscal revenue growth is likely to slow, and the nation will face more fiscal pressure in 2011.

That's partly due to planned taxation reforms, said Xie Xuren, minister of finance, at the national fiscal work conference on Monday.

He also said the country will adopt the proactive fiscal policy next year to help poor people and less-developed regions.

China is gearing up tax reforms, including those to personal income tax and value-added tax, to help people on low-incomes and companies, especially those in tertiary industries.

The moves, which are expected to be unveiled next year, will put more pressure on the country's fiscal balance, analysts said.

Moreover, revenues could decline because of a predicted plunge in sales for major taxpayers such as automotive companies, as well as a slowdown in trade.

At the same time, the government will continue to implement a proactive policy, and it needs to maintain a proper level of fiscal input to accomplish projects already under construction. It also has to further increase investment in infrastructure construction such as agricultural and irrigation projects.

More fiscal funds will also need to be earmarked for reforms in key sectors such as education, health and social security to improve the livelihood of the public and help them cope with rising inflation.

China's fiscal deficit is expected to hit 900 billion yuan ($136 billion) in 2011, according to media reports.

The central government's fiscal deficit will come in at around 700 billion yuan, while local government debt will remain at roughly 200 billion yuan, according to those reports.

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It's estimated that the 2011 national fiscal deficit will account for about 2 percent of GDP, down from about 2.5 percent in 2010.

China's fiscal deficit was 950 billion yuan in 2009, a six-year high, but was still lower than 3 percent of GDP, a figure considered by many economists as a security line.

China's annual fiscal plan is subject to approval by the annual national legislative session scheduled for early March.

"Tax reforms will move ahead in 2011," said Jia Kang, director of the Research Institute for Fiscal Science at the Ministry of Finance.

China has reportedly drawn up a framework for personal income tax reform by raising the taxable threshold to protect the interests of low-income people.

Moreover, policymakers could replace business tax with value-added tax, from which relevant companies would benefit through increased tax deduction. China's business tax covers the service industry, real estate and intangible assets.

"The fiscal pressure is there, but the situation won't be very serious," Jia told China Daily.

The government may extend pilot programs for resource taxes and launch property taxes in selected cities, which will result in an increase in revenue.

In the next five years, China should give local governments the power to adjust the tax system to ensure that their fiscal revenues are adequate to allow them to carry out their administrative responsibilities, Jia said at a forum.