The State Council executive meeting on April 19 presided over by Premier Li Keqiang decided to further promote tax cuts to drive the real economy and released a slew of tax cut incentives, which are estimated to reduce businesses’ tax burdens by more than 380 billion yuan.
First, the country’s nationwide VAT reform will proceed with a simpler tax rate structure. The four-tiered VAT system, with tax rates of 17, 13, 11, and 6 percent, will be reduced to three levels starting on July 1. The sectors involved are agricultural products and natural gas.
Second, tax cut incentives for small enterprises with limited profits will expand from January 2017 to December 2019. Businesses with profits under 500,000 yuan will be eligible, instead of the previous 300,000.
Third, the proportion of pre-tax deductions for innovation-based tech firms will be further expanded from the present 50 percent of R&D prime cost to 75 percent, valid from 2017 to 2019.
Fourth, tax incentives currently given to venture capital firms will expand their coverage to incubators and new high-tech companies, securing venture capital support in eight designed locations, including the Beijing-Hebei-Tianjin hub, Shanghai and Guangdong, as well as Suzhou Industrial Park, effective from Jan 1, 2017.
In addition, starting July 1, the preferential policy will be expanded to individual investors, and investments in the past two years will also be included.
Fifth, further tax cuts for commercial health insurance will be applied nationwide, with an upper limit of 2,400 yuan in tax deductions per person.
Sixth, part of the preferential tax policies that expired at the end of 2016 will be extended to the end of 2019, including the 50 percent reduction in tax rates on urban land use for logistics facilities that store commodities such as agricultural and mineral products.
In addition to the detailed measures, the Premier also urged speeding up the implementation process of the tax preferential policies to benefit various market entities, including small and micro businesses, innovation-based tech companies, and reform pilot zones.