Rebate pay welcome, but what's to follow?
By Xin Bei (China Daily)
Updated: 2004-07-02 14:55

The State Administration of Taxation recently declared it has basically paid all of the more than 200 billion yuan (US$24.1 billion) in rebates it owed to domestic trading firms.

Although welcome, the announcement was quite unexpected.

When the government slashed the rebate rate by an average of 3 percentage points to about 12 per cent at the beginning of this year, many domestic traders took a suspicious attitude.

For some traders, the tax rebate cut looks like merely a move to ease the central government's financial burden and reduce the mounting pressure for a revaluation of the renminbi at the cost of their profit margin.

Yet the problem has now taken a turn for the better thanks to robust growth of the country's fiscal revenue.

Rapid economic growth, excessive growth in fixed assets investment in particular, raised the country's fiscal revenue to 1.197 trillion yuan (US$144.2 billion) during the first five months of this year.

The government's financial position has been largely strengthened as revenue exceeded expenditures by 365 billion yuan (US$44 billion).

With the government earnestly fulfilling its pledge of prompt tax rebates, actual payments have temporarily been resolved to the satisfaction of all.

The fact the country's exports increased by 33.4 per cent to US$207.6 billion in the first five months indicates tax rebate cuts have not bitten into the export sector's growth momentum.

In a sense, it is timely rebates that helped many domestic traders survive the sweeping credit tightening measures the central government adopted to slow down overheating economic growth.

A practical question one may raise is how will domestic exporters maintain their financial footing after the government pays all the overdue rebates?

The country's tough measures for macroeconomic control will continue to work, but domestic exporters still lack the sort of financial support needed to overcome the difficulties resulting from changed economic policies.

Another question is whether the government can make use of the current favourable financial position to institutionalize payment of tax rebates.

After all, predictable government behaviour is crucial to reduction of domestic exporters' management risks.

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