As GDP growth dropped, the growth of fiscal revenue turned downwards in July. According to MOF figures released on August 21, the country had fiscal revenue of 532.33 billion yuan ($77.71 billion) that month, a year-on-year increase of 13.8 percent, which was 19.3 percentage points lower than the same period last year and 19.7 percentage points lower than the rate in the first half of 2008.

The major factor that encumbers fiscal revenue growth is the negative growth of business taxes from the securities, insurance and real estate sectors. In the first half of 2008, China's stock market fell sharply, causing significant revenue drops in the securities and insurance industries. At the same time, the real estate market also suffered a continual downturn.

Other factors, such as worldwide economic stagnation, the appreciation of the renminbi and price hikes of raw materials and energy, caused profits for some companies-especially SMEs-to fall. NBS figures indicate that in July added value completed by enterprises with annual sales revenue of more than 5 million yuan ($729,927) increased 14.7 percent compared with a year ago, or 3.3 percentage points lower than that in the same period last year.

For these reasons, consumption, business and income taxes experienced double-digit slides in their growth rates. In July, corporate income taxes decreased 4.2 percent from a year ago, which was 38.7 percentage points lower than the growth rate in the same period last year, and 45.7 percentage points lower than that in the first half of 2008. This was the first time since 2003 that tax revenue growth had fallen sharply.

Liu Shijin, Vice Minister of the Development Research Center of the State Council, told Xinhua News Agency that if economic growth continued to slow down and tax revenues continued to drop significantly in the second half, the state could adopt new regulations to possibly stabilize the economy through tax cuts.

Against the backdrop of the global economic slowdown, many countries and regions have announced tax cuts to stimulate their economies. For example, the Korean government put in place a tax reform policy that significantly lowered individual and corporate income tax rates to stimulate personal and corporate expenditures and promote economic growth. The Financial Services Agency of Japan also said on August 26 that it was considering suggesting exemptions from part of the dividend and capital gains tax. At the beginning of this year, the U.S. Senate passed stimulus plan based on a $161-billion tax cut scheme.

Where to cut taxes

Because tax rate adjustments will influence economic benefits not only for individuals and companies, but also the state, tax policy is one of the fiscal policies that concern people most.

In China, turnover and income taxes are the two major sources of tax revenue, accounting for about 70 percent. Others include taxes on resources, property and agriculture and tariffs. Turnover tax includes value-added tax (VAT) and consumption and business taxes, while income tax includes corporate and individual income. Turnover tax and income tax are most familiar to the public and are deemed major targets for future tax cuts.

According to the MOF, turnover tax revenue in 2007 accounted for 40.8 percent of the country's total tax revenue, and VAT accounted for 21.6 percent. Corporate income tax and individual income tax accounted for 19.2 percent and 7 percent, respectively, an aggregate of 26.2 percent.