'No more illegal tax cuts for investors'

Pressure mounts in meeting annual fiscal goal, minister of finance says

Senior officials in China have urged local governments to tighten their belts and stop offering illegal tax cuts to investors amid slumping revenues this year.

Liu Jiayi, director of the National Audit Office, the country's top auditor, has called for better supervision of the balance sheets of local governments and an end to illegal tax cuts for investors.

"One important task at the moment is to increase income while cutting down on expenditure," Liu told lawmakers on Thursday during the ongoing bimonthly session of the National People's Congress Standing Committee, the country's top legislature.

Liu said getting rid of illegal tax cuts and other illegal policies can also help restore fair competition in the market.

He said local governments are still subsidizing companies and giving them favorable conditions that contravene national policy, although the central government called for a halt to these several years ago.

Among the 18 provincial regions being audited, local governments have offered nearly 37.1 billion yuan ($6.03 billion) of tax cuts and refunds, as well as 8.3 billion yuan of financial subsidies to companies that invest in their areas.

On the other hand, Liu said, some of those places have not met the investment target for promoting people's livelihoods.

Finance Minister Lou Jiwei, who also delivered an annual report to the top legislature on Thursday, said government revenue faces pressure this year amid the economic slowdown.

In the first four months, fiscal revenue on the national level grew only 6.7 percent year-on-year, a decrease of 5.8 percentage points from a year earlier, mainly due to structural tax cuts and slower growth in foreign trade, Lou said.

"To realize the annual target for revenue growth this year (8.5 percent), fiscal revenue needs to grow at an average 11.3 percent in the remaining months," he said.

However, that will not be an easy mission as there are still conditions restricting the fiscal revenue growth in the coming months, including shrinking enterprise profits and more tax cuts in the pipeline. "Therefore, there is great pressure on realizing the budgeted target growth," he said.

To guarantee healthy growth in fiscal revenue, Lou also called for the end to irregular tax reductions, which are mostly given by local fiscal authorities to lure investors.

"Unauthorized tax reductions will be prohibited, so will hidden tax cut measures such as tax refunds," he said.

Lou reiterated the importance of further tax reform, including the replacement of business tax with value-added tax to lower the tax burden for enterprises, especially smaller ones.