The Ministry of Finance has denied reports indicating the mainland's value-added tax (VAT) will be slashed. The People's Daily quoted an unnamed Finance Ministry official saying Beijing had 'no plans to lower VAT'. He said: 'Recent domestic and overseas reports of lowering the rate were inaccurate and irresponsible.' The news of a possible VAT cut led to a price rally of red chips and H shares last week on Hong Kong's stock exchange, according to brokers. Beijing-based China Economic Times last week reported that a revising of temporary rules on VAT would lead to a lowering of the charge. The VAT, presently at 17 per cent, is among the highest in the world. As a result, compliance is far from uniform. The People's Daily said enterprises went to extraordinary lengths to avoid the charge as they tried to improve their price competitiveness. Also, the Ministry of Finance cites tax evasion as one of the biggest fiscal problems facing the mainland. Analysts said the ministry could not afford to lower VAT, as such a move would greatly affect its revenue intake. Beijing has already cut or scrapped various government fees and charges imposed on enterprises in an effort to ease their burdens amid Asia's economic downturn. The State General Administration of Taxation has said it would be difficult to increase collections of VAT in the second half of this year. It did not explain why, but analysts pointed to the declining profitability of state enterprises and listed companies as a chief reason. The mainland's VAT and consumption tax, the two main contributors to state coffers, amounted to about 201 billion yuan (about HK$187.1 billion) in the first half of this year, a 4.5 per cent increase from a year ago. The state budget deficit, originally forecast at 46 billion yuan for the present financial year, will balloon to 96 billion yuan because of the recent issue of a special 100 billion yuan treasury bond to kick-start the economy. The additional 100 billion yuan is to be added to the deficit over two financial years, starting with this budget.