China Tax Revenues Jumped 27.4% in 2011

China’s total tax revenue for the first 9 months of 2011 soared 27.4% year-on-year to 7.12 trillion yuan ($1.12 trillion), reported the Ministry of Finance Thursday. The increase was attributed to economic growth, inflation and tax policy changes.

Value-added taxes generated 18.7% more than a year earlier to reach 1.81 trillion yuan ($275 bil.), accounting for 25.5% of all taxes collected by China.

Business taxes jumped 35.8%, personal income taxes rose 34.4%, and sales taxes went up 24%.

Gross consumption taxes increased 17.7% year-on-year to 552.37 billion yuan ($84 bil.) during the first nine months. accounting for 7.7% of total tax revenues, powered by a 16.9% retail sales growth from a year earlier.

Industrial value-added output rose 14.2% during the January-August period while fixed-asset investment rose 25 percent year-on-year during that period.

The bulk of the tax revenue increase could be tied to China’s economic expansion. GDP growth was 9.7% in the first quarter, 9.5% in the second quarter and 9.1 percent year-on-year in the third quarter.

Some of the tax revenue increase was attributable to inflation. The Producer Price Index (PPI), a measure of inflation at the wholesale level, rose 7.1 percent in the first eight months of the year. The consumer price index (CPI), which measures consumer inflation, rose 5.6 percent year-on-year.

Tax revenue growth rates are showing signs of slipping from quarter to quarter. During the first quarter the year-on-year growth was 32.4%. However, the growth rate fell to 25.2% in Q2 and 22.6% in the most recent quarter.

China’s slowing economic activity was cited as the reason for the slowing growth of tax revenues by the Ministry of Finance. Another factor is policy adjustments introduced in the third quarter, including a cut in import tariffs on certain resources beginning in July and personal income tax reforms that took effect in September.