BEIJING — China has announced a new round of tax cuts in a bid to shore up its economy amid external uncertainties.
Chinese authorities on Oct 20 unveiled draft temporary measures on special additional deductions from taxable personal incomes, as part of a broader overhaul of the individual income tax law.
The new deductible items include children’s education, continuing education, treatment for serious diseases, caring for the elderly, as well as housing loan interest and rents.
These six deduction items could reduce annual tax burdens by 116 billion yuan ($16.73 billion), which could translate into an 81 billion yuan of consumption increase and may raise consumption growth and nominal GDP growth by 0.22 and 0.08 percentage points, respectively, Asian investment bank Nomura said in a research note.
“We expect more substantial tax reforms in the coming months,” it said.
China has pledged a more proactive fiscal policy to boost the economy, which expanded at a pace of 6.7 percent in the first three quarters, above the government target.
In an interview with Xinhua earlier in October, China’s Minister of Finance Liu Kun said the proactive fiscal policy will prioritize four sectors, namely cutting taxes and fees, improving weak links, boosting consumption, and improving people’s livelihood.
Apart from policies to reduce taxes and fees unveiled at the beginning of the year, China has announced more policies to support the real economy and technological innovation, which will help reduce enterprises’ burden by more than 1.3 trillion yuan this year, Liu said.
While the revision on the individual income tax law is expected to reduce household burdens, China’s new value-added tax (VAT) reform measures helped trim the tax bills at the corporate level.
Starting from May 1, the VAT rate was lowered from 17 percent to 16 percent for manufacturing and some other industries, and from 11 percent to 10 percent for transportation, construction, basic telecommunication services, and farm produce.
In addition to the rates cut, the reform also offered tax incentives for some hi-tech companies and unified the standard for small-scale taxpayers.
Altogether, these measures have reduced corporate taxes by 238.6 billion yuan as of the end of September, according to Zheng Xiaoying, a senior official with the State Administration of Taxation.
Due to the reform, China’s tax revenue slowed growth to climb 8 percent in the third quarter, lower than 13.1 percent in the second quarter and 17.8 percent in the first quarter, according to data from the administration.
More tax reduction measures may be on the way. Ma Jun, a member of the monetary policy committee of the People’s Bank of China, said that China could cut the tax by about 1 percent of GDP next year, Xinhua-run Shanghai Securities News reported. That could mean China’s tax cuts would be greater than the extent of the tax reductions in the United States, Ma said.