China'a WTO Entry Likely to Raise Tax RevenuesChina's entry into the World Trade Organization (WTO) will have a multi-facet influence on the country's fiscal policies but its tax revenues will keep increasing, said an article in the Beijing-based weekly magazine Outlook.Since China adopted reforms and more open trade policies two decades ago, its tariffs have increased along with the expansion of its foreign trade, amounting to 4 to 6 per cent of public revenues, and an even higher proportion of central revenues. One of the major obligations for China's WTO membership is to slash its tariffs. China has drastically cut its tariffs five times between 1992 and 1999, lowering its average import tariff level from 43 per cent to 17 per cent. And it also promised to drop its tariff level to 10 per cent by 2005 after its entry into the global trade organization. Currently, the average tariff level of all WTO members was about 6 per cent, which stood at 3 per cent in developed countries and 10 per cent in developing ones. Will tariff concessions lead to a decrease in tariffs? Generally speaking, the growth of tariffs depends mainly on tariff rates and the volume of imports. Though a tariff cut theoretically means a proportional decrease in tariffs, tariff concessions and the removal of non-tariff barriers according to WTO rules can also help enlarge the tariff base by boosting imports, said the article. A rough calculation based on 1998 statistics showed that if the tariff level was reduced from 17 per cent to 10 per cent by 2005, the country will collect a decrease in tariffs amounting to 12 billion yuan (US$1.45 billion) during this period. However, if imports grow 15 per cent annually, the country will collect additional tariffs worth 30 billion yuan (US$3.61 billion). Therefore, after tariff concessions, China will still maintain its growth momentum for tariffs, noted the article. In fact, the country slashed its tariff level to 43 per cent, 36 per cent, 23 per cent and 17 per cent in 1992, 1994, 1996 and 1998 respectively. At the same time, the soaring volume of imports boosted the country's tariffs to 21.2 billion yuan (US$2.54 billion), 27.3 billion yuan (US$3.29 billion), 30.2 billion yuan (US$3.64 billion) and 31.3 billion yuan (US$3.77 billion) in 1992, 1994, 1996 and 1998 respectively. It is noteworthy that under the high tariff rates, a large number of tariff concessions and preferences plus inefficient administration have severely eroded the tariff base in the past, said the article. Statistics indicated that though the country's tariff rates were high, the actual tariff rates were only 4.79 per cent, 3.3 per cent, 2.6 per cent and 2.7 per cent in 1992, 1994, 1996 and 1998 respectively. Therefore, even if China slashes tariffs in the post-WTO era, there is still much room for tariff growth if the State standardizes and enhances its tariff administration. Export rebates are a significant way to stimulate exports because it allows a country to export goods at tax-free prices. China has increased export rebates in recent years to sustain its rapid export growth. Between 1997 and 1999, the State raised the average export rebate level from less than 10 per cent to 14.7 per cent. Meanwhile, the export rebate paid with public finance climbed from 55.5 billion yuan (US$6.69 billion) to 62.8 billion yuan (US$7.57 billion) during that period. Initial studies indicate that in the post-WTO era, the country will witness rapid growth in export rebates that add to the government's fiscal burden. Under the current value-added tax system, there will be little room for a further rise in the export rebate rate which already reached about 15 per cent in 1999. To maintain long-term economic development and balance of payment, however, China needs to rapidly expand its exports under mounting import pressure in the post-WTO era, said the article. It is estimated that China's exports would increase by 9.7 per cent annually between 1998 and 2005, bringing about an aggregate increase in export rebates worth 120 billion yuan (US$14.5 billion) by 2005. Moreover, the administration of export rebates should be enhanced to check for related frauds, said the article. Along with economic and social progress, social security spending will become an increasingly important portion of the country's financial expenditures and the national economy as well. China is undergoing a period of transition towards a market economy, which can improve overall economic efficiency but also increases the risk of social instability. Following the country's WTO entry, some industries and a considerable number of State-owned enterprises will be exposed to fierce competition. As a result, the number of jobless people will increase, forcing the government to spend more on ensuring minimum living standards for the unemployed. Therefore, one of the top priorities of the country's fiscal policy is to improve and perfect the social security system and budget in the post-WTO era, said the article. Fiscal investment constitutes a major part of financial expenditures. After joining the WTO, China should intensify government-led fiscal investment to support the development of key industries in order to sharpen the country's global competitive edge. As a developing country, China still lags behind developed countries in terms of both economic strength and technological ability. The country should upgrade its traditional labour-intensive and resource-intensive industries with modern technologies. Nevertheless, due to the country's limited financial strength, the proportion of fiscal investment in fiscal financial expenditures decreased from 28.2 per cent in 1980 to 12.8 per cent in 1998. Such declining fiscal investment will weaken the government's role in controlling macroeconomic development. Hence, in the post-WTO era, the State should readjust its financial expenditure structure to enhance fiscal investment, added the article. |
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