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Local governments can use power of discretion in tax policy

Updated: Mar 9,2015 3:41 PM

Premier Li Keqiang joins discussion with National People’s Congress (NPC) deputies from Sichuan province in Beijing, March 8, 2015.[Photo/Xinhua]

Local authorities can use their power of discretion in adopting preferential tax policies to boost economy, provided they are within the law and do not result in unfair competition, Premier Li Keqiang said when he joined the Sichuan delegation to the National People’s Congress to review the government work report.

Wei Hong, governor of Sichuan, told the Premier at the meeting that investment projects worth almost 1 trillion yuan ($159.6 billion) were suspended due to a State Council’s notice to trim preferential tax policies.

In the notice issued in December 2014, the State Council said that preferential tax policies issued by some local authorities and governmental departments had disrupted the market, compromised the country’s macroeconomic policies, and might even trigger international trade friction.

As a result, it said that local authorities are not allowed to issue preferential tax policies that go beyond the scope of their authority, and they should check carefully any preferential tax policies they have already initiated, abolishing those that break the law and regulations and apply for the approval from the State Council on those lawful policies that they believe are necessary.

Wei said that implementing the notice has led to the indiscriminate abolishment of preferential policies, with the result that many investment projects have been suspended.

“What needs to be trimmed are policies that are against the law, unreasonable or result in destructive or unfair competition,’’ the Premier responded.

Local authorities must follow the principles stipulated in the notice, but they should also use their discretion concerning which policies should be abolished and which should be kept, he said.

“The government allows preferential policies, especially the policy under which enterprises in western regions doing the kinds of business the government encourages pay income tax at a rate of 15 percent,” said Li.

In April 2012, the State Administration of Taxation issued a notice offering tax relief on enterprises in western regions.

According to the notice, enterprises whose main businesses concern the sectors encouraged by the government and local authorities can pay a 15-percent income tax rate, which is lower than that stipulated by the Enterprise Income Tax Law.