China will introduce an additional 500 billion yuan ($70 billion) in tax cuts and fee reductions as part of an effort to aid businesses impacted by the Covid-19 outbreak, Premier Li Keqiang announced.
Li announced the measures at the opening of the annual National People’s Congress meetings in Beijing Friday along with other policies such as transferring 2 trillion yuan to local governments to support local tax and fee reductions, rent reductions, and cover interest on loans.
“We will continue implementing reductions of VAT rates and the share of employees’ basic old-age insurance paid by enterprises, and we will make further tax and fee cuts of about 500 billion yuan,” said Li.
A raft of previously implemented VAT reduction policies that would have expired in June will be extended to the end of the year, and certain qualifying small and medium-sized businesses will continue to be exempt from pension, unemployment, and work injury contributions, Li said. Qualified small businesses and self-employed individuals will also have income taxes postponed until 2021.
“We are happy to see the announcement on the continuity of the VAT and social security reduction policy as well as the extension of the current tax incentives to certain industries and small and micro companies,” Wen Zhe, international tax director at law firm FenXun Partners in Beijing told Bloomberg Tax.
“This year will be more difficult for the industries being affected by the Coronavirus pandemic and the economic slowdown around the globe,” he said. “Those tax policies will strongly support the economy recovering and efforts of stabilizing employment.”
Specifics on the new $70 billion in tax cuts were not detailed, however.
“The report only gave general support for the tax cuts but didn’t give the specifics on which taxes will be cut further,” Tianjun Wu, Deputy Economist at the The Economist Intelligence Unit, told Bloomberg Tax.
“The tax cuts will help the Chinese and foreign business on marginal basis,” Wu said. “However, it is unlikely to change the low business confidence inside China.”
Li also announced that electricity price reductions of 5% for industry and businesses would be extended through the end of the year, and broadband and internet rates for businesses cut by around 15% on average.