China’s US$150 billion tax cut: Beijing claims headway in cutting business burden
China will cut the burden on business by at least 1 trillion yuan (US$150 billion) this year through its new value-added tax regime and fee cuts, Chinese Finance Minister Xiao Jie forecast.
In a statement to the South China Morning Post, Xiao said the switch to the new VAT system in 2013 had saved businesses about 1.6 trillion yuan in taxes and fees by the end of August.
The minister’s comments come just days after the US Senate approved US President Donald Trump’s tax plan, an overhaul that Trump claimed would pave the way for the biggest tax cut “in the history of our country”. Part of the plan is to cut the corporate tax rate from 36 per cent to 20 per cent.
In absolute terms, China’s fiscal revenues, mainly in the form of tax, rose 9.7 per cent in the first three quarters from a year earlier to 13.4 trillion yuan, a faster rate than the 6.9 per cent economic growth registered in the same period.
Last year, glass tycoon Cao Dewang ignited debate over the tax burden on businesses when he declared that the administrative cost of setting up factories in the United States was lower than in China.
Li Weiguang, a professor of fiscal science at Tianjin University of Finance and Economics, also said last year that China was taxing its businesses to death.
But Xiao, who was China’s taxation administration chief from 2007 to 2013, disagreed.
“It’s part of China’s supply-side reform to cut the tax burden on businesses and to help companies reduce costs,” he said. “We have been implementing tax cuts and fee reductions on a massive scale in recent years.”
He said that in addition to tax changes, China had exempted some Chinese companies from compulsory social welfare contributions.
Deputy finance minister Hu Jinglin said in a separate statement that the Chinese leadership had told the ministry to “provide water for fish” in the form of tax cuts. Other pilot schemes were under way in designated industrial parks.
Xiao also said China’s fiscal deficit would fall within the budgeted 2.38 trillion yuan this year, and the national fiscal deficit to GDP ratio would be below 3 per cent thanks to stronger-than-expected economic growth.
Xiao said his ministry was looking at ways to install a local government debt ceiling for each region as a way to manage risks, underscoring that debt incurred by local government financing vehicles was not “governmental” but “corporate”.
Xiao said there was one new type of tax that could be launched in China – property tax.
“The preliminary work for legislation is under way,” Xiao said. “Property tax relates to every family and every taxpayer, and it requires ample research and study.”
Source: South China Morning Post