China’s fiscal revenue declined at a faster pace in August and land sales revenue posted steepest drop since June 2015 amid a prolonged housing market downturn and an economic slowdown.
Fiscal revenue fell by 2.8% year-on-year in August, expanding by 0.9 percentage points from the previous month, according to data released by the Ministry of Finance on Friday.
In breakdown, tax revenue dropped at an even faster pace, down 5.2% from a year earlier, widening by 1.2 percentage points from the previous month, while non-tax revenue increased by 8.8%, slowed by 5.7 percentage points from July, showed the data.
Since the end of 2023, sluggish tax revenue has dragged down overall fiscal revenue, partly due to the impact of tax reduction and deferral policies. During the first eight months of the year, China’s fiscal revenue fell by 2.6% from a year earlier, but excluding the effects of special factors such as the high base due to the collection of deferred taxes from small and micro enterprises and the tail-end effects of mid-year tax cut policies, fiscal revenue for the first eight months of 2024 grew by about 1%, according to the ministry.
In contrast, non-tax revenue has been growing at a relatively fast pace, rising by 12% year over year in the first seven months, with revenue from the compensated use of state-owned resources (assets) increasing by 12.4%, mainly due to local governments revitalizing assets in various ways.
Among the major taxes, value-added tax (VAT), the largest one, has experienced significant fluctuations in 2024 due to the tax rebates and reduction policies. As the factors have gradually faded, and VAT revenue fell by 1.7% in August from a year earlier, with the drop narrowing by 1.2 percentage points from the previous month, showed the data.
Corporate income tax rebounded significantly in August after sliding for three consecutive months, rising by 20% from a year earlier, picking up from from a decline of 4.9% in July, consistent with improving industrial profits which have accelerated for two consecutive months.
Consumption tax and individual income tax also dragged down overall tax revenue. Domestic consumption tax fell by 4.6% in August, widening by 1.5 percentage points from the previous month, and individual income tax fell by 2.9%, narrowed by 1.7 percentage points, likely still affected by increase in special additional deductions for personal income tax in mid-2023.
Driven by the improvement in import growth, VAT and consumption tax on imported goods rose by 2.3% in August from a year earlier, though slowing by 6 percentage points, and the growth rate of customs duties also slowed by 0.6 percentage points to 4.6%.
Revenue from taxes related to land and real estate remained sluggish. Deed tax fell by 20.3% year-on-year in August, expanding by 10.1 percentage points from the previous month; land value-added tax slumped 25.8%, narrowing by 2.5 percentage points; while property tax, urban land use tax, and farmland occupation tax grew by 17.1%, 10.8%, and 9%, respectively, slowing by 1.1 – 33.9 percentage points, showed the data.
Vehicle purchase tax and stamp tax continued to decline sharply in August, with slumping 29.5% and 49.6%, respectively, according to the data.
Fiscal expenditure turned to decline in August, falling 6.7% from a year earlier, compared to a growth of 6.6% in the previous month. Fiscal expenditure in the first eight months only reached 60.9% of the whole-year budget, making it the second lowest progress in five years, only slightly faster than the same period in 2020 amid Covid pandemic.
By category, fiscal expenditure on urban and rural communities, debt interest payments, as well as agriculture, forestry and water grew rapidly in the first eight months, rising by 6.5%, 5.6%, and 5.4%, respectively, from a year earlier.
Land sales revenue, a key source of local government’s revenue and not included in the fiscal revenue, continued to decline. Local governments’s land sales revenue tumbled by 41.8% in August from a year earlier, widening by 1.5 percentage points from the previous month, showed calculations based the ministry data, marking the steepest decline since June 2015.