China’s fiscal revenue fell for second straight month, revenue from land sales declined for 4th month in a row

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China’s fiscal revenue declined on year in October for the second straight month as economic recovery slows, while fiscal spending returned to growth. In particular, the government’s revenue from land sales slid for the fourth consecutive month amid the cash crunch in the real estate sector.

Fiscal revenue fell slightly by 0.1% in October from a year earlier to 1.75 trillion yuan, narrowing by 2 percentage points from September, according to data released by the Ministry of Finance on Friday.

In breakdown, tax revenue dropped 2.2% year over year last month, marking the first fall this year, while non-tax revenue grew 24.7%, ending a three-month falling streak.

The ministry said it’s confident that the country will achieve the full-year growth target for fiscal revenue as “revenue in the first ten months of this year largely matched expectations.” Fiscal revenue in the ten-month period grew 14.5% from a year earlier, well above the 8.1% target, showed data from the ministry.

The slight drop in October was mainly because “the government has allowed companies to enjoy tax deductions on the research and development expenses earlier than previous years,” said the ministry.

Before 2021, enterprises can only enjoy the tax deduction for the current year in the following year. But in September this year, China’s taxation authority allowed companies to enjoy the benefit in September or October, at least three months earlier than previous years.

The drop was also partly due to “slowdown in some economic indicators,” it said. Due to controls on energy consumption, production curbs and restrictions on electricity power use, China’s industrial production has been slowing since June and the growth hit 3.1% in September, the slowest this year, before it rebounded slightly to 3.5% last month.

Due to slowdown in industrial production, the government’s revenue from value-added taxes fell 2.5% year over year in October, shows calculations based on ministry’s data, marking the first drop this year.

In the first ten months of the year, fiscal revenue from value-added tax increased by 15.1% from the same period last year.

The change in tax deduction arrangement has led revenue from corporate income taxes to drop 5.8% in October from a year ago, compared to a growth of more than 20% in September.

Among other taxes, revenue from domestic consumption tax fell 7% in October, compared to the 19.1% growth in September. Revenue from value-added tax and consumption tax on imports increased 10.6%, while revenue from tariffs fell 6.3%.

Fiscal revenue from personal income tax grew 16.9% in October, accelerating by 6.7 percentage points from a low in September.

Vehicle purchase tax fell 25.4%, the same as the growth a month earlier and in line with the sliding car sales. China’s vehicle-related retail sales fell by more than 11% in year over year in October, sliding for fourth consecutive month.

Revenue from stamp tax jumped 62.4% in October from a year ago, accelerating by more than 30 percentage points from the prior month, indicating active securities transactions.

China’s fiscal spending returned to growth again in October, rising by 2.9% from a year earlier to 1.47 trillion yuan, compared to a 5.3% drop in September. Total fiscal spending in the first ten months of the year accounted for 77.5% of the full-year target, 1.1 percentage point faster than the same period last year, but still slower than 2019.

Notably, China’s revenue from land sales declined by more than 13% in October from a year earlier, faster than the 11.2% drop in September and sliding for a fourth consecutive month, showed calculations based on the ministry’s data, as cash-strapped developers turned more cautious on land buying.

Poor demand among developers at urban land auctions risks squeezing regional finances, pressuring local governments to scramble for other income to fund investment and support the economy, including the issuance of more bonds that increase their debt obligations, say some analysts.

“Declining land sales will constrain fiscal funding for infrastructure, leading Chinese regional and local governments to temporarily shift to debt-funded growth,” Moody’s said in a recent report. Not all provinces and regions are equally dependent on land-sale revenue.

“The unevenness in regional growth will persist, with developed provinces continuing to perform better than less-developed ones,” Moody’s said.

China’s government land-sale revenue grew 6.1% to 5.9371 trillion yuan in January-October from a year earlier, data from the ministry showed, slowing from the 8.7% rise in the first nine months.