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China's Tax Revenue Drops as GDP Grows

China's tax revenue and GDP have been going in opposite directions. China's Finance Ministry reported a 3.5-percent decline in tax revenue in the first quarter of 2025 from the same period a year earlier, contrasting with the 5.4-percent growth in GDP reported for the same period. 

Sources: China's Ministry of Finance and National Bureau of Statistics.

The divergence between tax revenue and GDP follows very similar figures posted for 2024 when tax revenue fell 3.4 percent and GDP reportedly grew 5 percent. Tax revenue once grew more than 20 percent annually when GDP growth was 10 percent or more in 2010 and 2011, but growth has become choppy since 2019. Tax revenue declined in 3 of the last 4 years and grew only 1 percent in 2019. Either GDP statistics do not actually reflect economic activity or China's economy has fallen into a habit of building and making things that fail to generate revenue. 

China's total tax revenue grew less than 200 billion yuan between 2018 and 2024, and revenue was up and down every year. In comparison, revenue had grown about 550 billion yuan during the 6 years between 2012 and 2018.

Data from China National Bureau of Statistics database.

The largest component of China's tax revenue is the domestic value-added tax (VAT)--which should be roughly proportional to GDP. According to the Q1 2025 Ministry of Finance report, domestic VAT revenue increased by 2.1 percent year-over-year in Q1 2025, less than half the rate of reported GDP growth. Consumption tax revenue increased 2.2 percent. The tax on car purchases fell 27.6 percent from a year earlier.

Company taxes--the second-largest component of revenue--fell by 6.8 percent in Q1 2025. 

Foreign trade is not a money-maker for the Chinese government. The government gives refunds of VAT paid on products that are exported and assesses VAT on the full landed value of imports. Refunds of VAT on exported products increased by 14 percent in Q1 2025. Revenue from VAT on imports fell by 8.7 percent and tariff revenue fell by 14.8 percent in Q1 2025.

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