China’s tax authority announced on Nov 9 that it is putting forward a more aggressive tax reduction plan, focusing on value-added tax and individual income tax reform to stabilize investment and kickstart private enterprises.
“We will propose a larger-scale tax cut and a fee reduction policy as soon as possible,” says Wang Jun, director of the State Taxation Administration, in an interview with China Daily.
Wang adds that the plan will be straightforward and is an effort to benefit a broader group of individuals and businesses. Once introduced, the policy will further cut corporate tax bills, especially for tech startups and small and micro enterprises.
“In the meantime, we will work with other government departments to improve the specific individual income reduction plan after seeking public opinion,” Wang says.
With the effects of the tax cuts predicted to set in during the remaining two months of the year, the total tax reduction amount is forecast to exceed 1.3 trillion yuan ($187 billion; 165.4 billion euros; ￡145 billion). This is expected to lead to a continued slowdown of tax income growth at a rate similar to annual GDP growth, he says.
Wang says such a proactive fiscal policy will continue into next year, since downward economic pressure on the world’s second-largest economy could rise. Overall tax cuts in 2019 are expected to remain steady and be no lower than this year.
Bai Jingming, vice-president of the Chinese Academy of Fiscal Sciences, says the next step for value-added tax reform is clear, and that is to further reduce VAT brackets from three to two.
“It will be introduced in the very near future,” Bai says.
He predicts that the upcoming tax cut effects from this measure could be even stronger than the results achieved so far this year.
“The taxation administration plans to elicit suggestions on lowering the corporation social security premium rate to ensure a real benefit to their operating costs,” Wang says.
For private companies facing financing difficulties, further tax policies could be introduced to ease their burden and some tax payments could be delayed.
In terms of supporting financial institutions that lend to small and micro enterprises, taxes on bank interest income and financing guarantee income will be waived, he adds.
According to Wang, beneficial policies resulted in a total tax cut of 143.7 billion yuan for small and micro enterprises in the first three quarters of this year, up by 41.3 percent year-on-year. For 732 large private companies, under the SAT statistics system, tax cuts reached 71.4 billion yuan, up by 19.3 percent year-on-year.
Through the VAT reform, about 238.6 billion yuan in taxes had been reduced by the end of September, according to data released by the administration.
The tax cut policies mean the country’s fiscal revenue growth is likely to slow further in the fourth quarter and next year, says Wen Zongyu, director of the Finance Ministry’s Research Institute for Fiscal Science.
(China Daily European Weekly 11/16/2018 page27)