China’s new tax cuts to benefit some sectors

CDB plans over $60b poverty relief loans

FE Team | Published: April 01, 2018 23:26:58

BEIJING, Apr 01 (Agencies): China's new value-added tax (VAT) reform measures are expected to reduce the burden on a range of sectors in the real economy, analysts said.
China will cut VAT rates as part of a tax reduction package amounting to 400 billion yuan (about 63.6 billion U.S. dollars) this year, according to a decision made at a State Council executive meeting Wednesday.
Starting from May 01, the tax rate will be lowered from 17 per cent to 16 per cent for manufacturing and some other industries, and from 11 per cent to 10 per cent for transportation, construction, basic telecommunication services, and farm produce.
While it will be only a one percentage point cut in each tax bracket, the reduction will impact a wide range of sectors in the real economy, according to Li Xuhong, a researcher with Beijing National Accounting Institute, a government think tank.
It was estimated that the reduction of taxes from lower VAT rates could reach 240 billion yuan. Li said the estimate was rather conservative, as tax reduction in the manufacturing sector alone could reach that amount. VAT tax cuts in the transportation industry will lower the logistics costs for the real economy, Li said.
Investment bank China International Capital Corporation (CICC) estimated that firms in the two tax brackets will see their VAT tax burden decline by 6.0 per cent and 9.0 per cent, respectively. "We believe that lower VAT rates will help reduce the prices of products and services in a number of competitive sectors, benefiting households and other sectors," CICC said in a research note.
In addition to the VAT rates cut, the reform also offers tax incentives for some hi-tech companies, a measure that analysts said is aimed at supporting innovation-driven growth.
Meanwhile, China Development Bank (CDB), a major policy bank, plans to lend 400 billion yuan (about 63.8 billion U.S. dollars) to support targeted poverty relief projects this year. The loans will be used to fund infrastructure construction, relocate poor residents, develop local industries, and improve education and health care in poverty-stricken areas, according to the bank.
It said it has extended 919 billion yuan of loans in the past five years for targeted poverty relief projects in 987 poor counties. Founded in 1994, the CDB is designed to provide finance to major national projects and development strategies. It has become the world's largest development finance institution.
The Chinese government aims to lift over 10 million people out of poverty in 2018, including relocating 2.8 million people from inhospitable areas. More than 68.5 million rural people were lifted out of poverty in China between the end of 2012 and the end of 2017. The national poverty rate fell from 10.2 per cent to 3.1 per cent.
China is aiming to eliminate poverty by 2020 in a bid to create a "moderately prosperous society."
Policy makers have listed poverty alleviation as one of the country's "three tough battles" for the next three years, along with risk prevention and pollution control.