China's broad-based tax cuts to benefit small and micro enterprises

China Plus Published: 2019-01-18 20:46:31
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Note: The following is an edited translation of an article from the Chinese-language "Commentaries on International Affairs."

At the beginning of the New Year, China's government launched new policies that respond to the downward pressure on economic growth. They include tax reductions for small and micro enterprises, which will be in place for three years. This is the first among a series of tax cuts and other stimulatory measures for 2019, and is expected to give a huge boost to the country's economic development.

Savings for the Chinese New Year. [Photo: VCG]

Savings for the Chinese New Year. [Photo: VCG]

Most companies in China will enjoy a tax cut this year. This is because they are targeted at companies with assets under fifty million yuan, fewer than 300 employees, and taxable income less than three million yuan. This represents a significant relaxation in the definition of what constitutes a small business. More than 95 percent of taxpaying enterprises in China fit this definition, and 98 percent of them are private firms.

The market is expected to respond positively to these unprecedented tax cuts, which will see small and micro enterprises enjoy progressive tax rates. Enterprises with taxable income of less than one million yuan will be taxed at 5 percent, which is 20 percentage points lower than the standard rate. And those with a taxable income between one million and three million yuan will be taxed at 10 percent, which is lower than the standard rate by 15 percentage points.

The new deal will also raise the value-added tax (VAT) threshold for small businesses, including sole traders, from 30,000 yuan to 100,000 yuan of sales a month. In other words, businesses with sales worth less than 100,000 yuan will be exempt from paying the VAT. At the same time, the central government is allowing local governments to reduce resource taxes, urban maintenance and construction taxes, stamp duty, urban land use taxes, and cultivated land occupation taxes, as well as local education surcharges.

According to tax department figures, China's small and micro enterprises already had their tax burden reduced to the tune of 184 billion yuan in the first 11 months of last year. And official estimates show that this new round of cuts will reduce the burden on small businesses by another 200 billion yuan a year. This will undoubtedly enhance private investment and consumption, at a time when the global economic downturn and the unresolved trade frictions between China and the United States have put pressure on China's economy, especially in sectors related to trade.

The measures China takes to deal with the cooling economy at home and abroad, and the growing pushback against globalization, has far-reaching global implications, as the country is home to the world's second largest economy. There are more than 100 million businesses in China, and small and micro enterprises account for the vast majority of them. Their healthy development helps to fuel the job market: As China's Premier Li Keqiang has said, these enterprises are the main channel for absorbing employment, and part of the government's rationale for introducing the tax cuts is that they will support employment. This will, in turn, be conducive to both the immediate and long-term development of the country's economy. But leaving small business owners with more money in their pocket means there will be less cash in the government's coffers. This is why Premier Li has urged government agencies to cut costs and raise awareness that government budgets will tighten.

In November, China's President Xi Jinping spoke highly of private enterprise and private entrepreneurship at a meeting with representatives of the business community. He promised to reduce the burden of corporate taxes and fees, and the tax reductions being introduced this year are a demonstration of him making good on that promise. Combined with the broader measures being introduced to help pump prime the economy, such as the move to cut the number of sectors closed to foreign investment (the negative list of market access), the broad-based tax cuts will help to improve China's business environment so that it will withstand the downward pressures.

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LU Xiankun Professor LU Xiankun is Managing Director of LEDECO Geneva and Associate Partner of IDEAS Centre Geneva. He is Emeritus Professor of China Institute for WTO Studies of the University of International Business and Economics (UIBE) and Wuhan University (WHU) of China and visiting professor or senior research fellow of some other universities and think tanks in China and Europe. He also sits in management of some international business associations and companies, including as Senior Vice President of Shenzhen UEB Technology LTD., a leading e-commerce company of China. Previously, Mr. LU was senior official of Chinese Ministry of Commerce and senior diplomat posted in Europe, including in Geneva as Counsellor and Head of Division of the Permanent Mission of China to the WTO and in Brussels as Commercial Secretary of the Permanent Mission of China to the EU. Benjamin Cavender Benjamin Cavender is a Shanghai based consultant with more than 11 years of experience helping companies understand consumer behavior and develop go to market strategies for China. He is a frequent speaker on economic and consumer trends in China and is often featured on CNBC, Bloomberg, and Channel News Asia. Sara Hsu Sara Hsu is an associate professor from the State University of New York at New Paltz. She is a regular commentator on Chinese economy. Xu Qinduo Xu Qinduo is CRI's former chief correspondent to Washington DC, the United States. He works as the producer, host and commentator for TODAY, a flagship talk show on current affairs. Mr. Xu contributes regularly to English-language newspapers including Shenzhen Daily and Global Times as well as Chinese-language radio and TV services. Lin Shaowen A radio person, Mr. Lin Shaowen is strongly interested in international relations and Chinese politics. As China is quite often misunderstood in the rest of the world, he feels the need to better present the true picture of the country, the policies and meanings. So he talks a lot and is often seen debating. Then friends find a critical Lin Shaowen criticizing and criticized. George N. Tzogopoulos Dr George N. Tzogopoulos is an expert in media and politics/international relations as well as Chinese affairs. He is Senior Research Fellow at the Centre International de Européenne (CIFE) and Visiting Lecturer at the European Institute affiliated with it and is teaching international relations at the Department of Law of the Democritus University of Thrace. George is the author of two books: US Foreign Policy in the European Media: Framing the Rise and Fall of Neoconservatism (IB TAURIS) and The Greek Crisis in the Media: Stereotyping in the International Press (Ashgate) as well as the founder of, an institutional partner of CRI Greek. David Morris David Morris is the Pacific Islands Trade and Investment Commissioner in China, a former Australian diplomat and senior political adviser. Harvey Dzodin After a distinguished career in the US government and American media Dr. Harvey Dzodin is now a Beijing-based freelance columnist for several media outlets. While living in Beijing, he has published over 200 columns with an emphasis on arts, culture and the Belt & Road initiative. He is also a sought-after speaker and advisor in China and abroad. He currently serves as Nonresident Research Fellow of the think tank Center for China and Globalization and Senior Advisor of Tsinghua University National Image Research Center specializing in city branding. Dr. Dzodin was a political appointee of President Jimmy Carter and served as lawyer to a presidential commission. Upon the nomination of the White House and the US State Department he served at the United Nations Office in Vienna, Austria. He was Director and Vice President of the ABC Television in New York for more than two decades.