The recently announced tax cut plan for the manufacturing industry will largely benefit the industries related to the Made in China 2025 strategy, according to global accounting firm Ernst & Young.
According to Kenneth Leung, leader of the indirect tax business at Ernst & Young Greater China, companies specializing in equipment manufacturing, research and development and power grids will see their burdens relieved with the retained value-added tax policy.
As Leung explained, equipment manufacturing as well as research and development are included in the Made in China 2025 strategy. These companies usually invest heavily in their early days in machines, plants and all other related facilities. It will take a long time before they finally register sales and profits. With the new policy, the VAT can be retained, which means that companies can enjoy a tax rebate when they eventually report sales results. It can largely secure their cash flow and relieve this tax burden.
“The tax regime reform this time is more than tax reduction. It has introduced more ways such as the retained VAT. It cannot even be imagined two years ago,” he said.
China will cut VAT rates this year as part of a tax reduction package amounting to 400 billion yuan ($63.6 billion) to drive high-quality development, a State Council executive meeting chaired by Premier Li Keqiang decided on March 28.
The tax rate for manufacturing will be lowered from 17 percent to 16 percent. The new rate will take effect on May 1.