China Extends new Tax Policy for Small and Micro Businesses
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China will cut RMB 200 billion (US$29.43 billion) worth of taxes for small and micro firms, as the government seeks to stabilize the economy and stave off unemployment amidst a protracted trade war with the US.
The tax cuts, which were initially announced by China’s State Council on January 9, expand the scope of preferential policies to apply to more firms and offer targeted support for high-tech investments. They apply to taxes paid from January 1, 2019 and will be in place for three years.
The cuts will primarily benefit small and micro firms – such as family-owned businesses – earning limited revenue, which constitute the majority of private businesses in China.
More tax cuts expected in 2019
For small and micro company, if their business turnover is between 1 million to 3 million, the company tax is 10%;
If their business turnover is under 1 million, the company tax is 5%;
The cuts are just the latest in a series of measures to cut costs for businesses, as the Chinese government looks to maintain employment and boost consumption as the economy slows.
According to recently released government statistics, China’s GDP growth clocked in at 6.6 percent in 2018, hitting the official growth target of “around 6.5 percent” but the lowest rate since 1990.
However, several regional economies such as Guangzhou and Shenzhen failed to reach their growth targets, and structural changes in the economy, an ongoing financial derisking campaign, and the impacts of US-China tariffs have created further uncertainty about the health of the Chinese economy.
Nevertheless, Chinese authorities have signaled that large-scale stimulus to the economy is not currently in the cards. Instead, the Chinese government is adopting a targeted approach of tax cuts and incentives to alleviate financial pressure on China-based companies.
Broader tax cuts will likely be announced at the annual Two Sessions meetings in March, where China’s leadership announces its agenda for the year. Last year, Chinese Premier Li Keqiang announced that China would cut up to RMB 800 billion (US$126 billion) in taxes in 2018.
With the Chinese economy under strain, however, it is possible that new tax cuts will be announced and implemented before then, as the Chinese government seeks to maintain stability and stave off unemployment.
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