The SARS outbreak will lead to a loss of 20 to 30 billion yuan (US$2.4-3.6 billion) in China's tax revenue this year.

This prediction is based on the possible impact that the disease will have on the economy and the government's efforts to reduce taxes and fees for some industries, said Zhang Peisen, a senior researcher with the Taxation Research Institute under the State Administration of Taxation

With an aim to alleviate the financial burden of SARS-hit sectors, the Ministry of Finance and the State Administration of Taxation have decided to reduce or waive taxes on them.

Last week, the two departments jointly issued a notice, saying taxes and fees, including business tax, levied on some industries such as tourism and hotels will be reduced or waived between May 1 and September 30.

In April, the two departments also announced the provision of preferential income tax policies for medical workers and those who donated money or goods for the prevention of SARS.

In Beijing, for example, the local government has cut the business tax for cab-drivers.

These tax initiatives amount to around 10-20 billion yuan (US$1.2-2.4 billion) in total, said Zhang.

Although SARS will have a certain negative effect on the economy, "so long as the country takes effective measures to cure SARS patients and prevent the disease from further spreading, the country is capable of maintaining the growth advantages of its economy," said Zhang.

The first outbreak of the disease was in South China's Guangdong Province, nevertheless the gross domestic product (GDP) in that province grew year-on-year 13 per cent during the first quarter of 2003.

The growth was 2.2 percentage points higher than the 10.8 per cent growth for 2002.

The most obvious negative impact of SARS was on the tourism and catering industries and transport, he continued.

In recent years, the income generated by tourism during week-long holidays, such as May Day and National Day was about 30 billion yuan (US$3.6 billion).

But that particular tourism income accounts for less than 0.3 per cent of the total economy, said Zhang.

People may reduce spending on dining-out, shopping and entertainment because of the virus outbreak, but they may increase spending on other disease-related items such as masks and disinfectant.

For exports and utilization of foreign direct investment, so long as developed countries demand labour-intensive products, China still has advantages.

"For ordinary people, they have to work to live," he said. "People will not give up their work to avoid the disease."

Jemal-ud-din Kassum, vice-president for East Asia and the Pacific of World Bank, said SARS is, in principle, a temporary shock - although there is a great deal of uncertainty as to how large the SARS crisis will ultimately be.

"China is still generally expected to grow at robust rates," he said.

Zhang said SARS will affect China's economy most seriously in the third quarter, but the economy will rebound strongly in the fourth quarter.

He predicted China's GDP will grow about 7.2 per cent in 2003 and maintain a rapid growth in 2004.

Overall, he added, SARS will pull down economic growth by about 0.3 per cent.

"This will result in a loss of about 10 billion yuan (US$1.2 billion) in tax revenue in 2003," said Zhang. He added that economic development usually contributed about 50 per cent to the total tax revenue growth.

Liang Yansen, an official with the State Administration of Taxation, said negative impact of SARS on the tax revenue has already begun to emerge.

During the first four months of this year, the country's tax revenue stood at 707.7 billion yuan (US$85.3 billion), an increase of 25.8 per cent compared with the same period last year, official figures show.

The growth rate was 0.8 percentage points lower than the first three months.

But an analysis of China's tax structure shows the disease will not have a very significant impact on the total revenue.

Presently, value-added tax and consumption tax, which make up more than 60 per cent of the total revenue, come mainly from the manufacturing sector, explained Liang.

"The manufacturing industry did not seem to be hardly hit by the disease," he said.

During the first quarter, the value-added tax and consumption tax in the manufacturing sector grew year-on-year by 20 per cent.

Business tax from tourism, catering and transportation, which was seriously hit by SARS, only accounted for a small share of the total revenue.

In 2002, business tax from the service sector and transportation was 65.8 billion yuan (US$7.9 billion) and 22.3 billion yuan (US$2.7 billion) respectively, accounting for 3.9 per cent and 1.3 per cent of the total tax revenue.

The impact of SARS on income tax was also quite small, because the tax mainly came from the manufacturing sector, said Liang.

Customs duties and automobile purchasing tax, which made up 13.3 per cent of the total revenue in 2003, have also been little affected by the disease.

On the contrary, fear of contracting SARS by traveling on public transport has prompted a number of people to buy their own car ahead of schedule. As a result, during the first quarter, car sales doubled and automobile purchasing tax rose year-on-year by 42.1 per cent.

During the first four months, combined import tariffs and automobile purchasing tax combined edged up 55.5 per cent to 99.5 billion yuan (US$12.0 billion).

(China Daily May 19, 2003)