Market vitality, lower taxes key focus

VAT rate in manufacturing, additional sectors to be cut by 3 percentage points

China will undertake measures to boost market vitality, with lower taxes and fees targeting business environment optimization being key strategies, said Premier Li Keqiang on Friday.

To cope with downward pressure, the country will not resort to large-scale quantitative easing, but will focus on strengthening market entities, Li said at a news conference at the conclusion of the two sessions in Beijing.

"China now has over 100 million market entities, and when their vitality is fully unleashed, there will be incalculable energy created," Li said, adding that this year's tax and fee cuts will be "a very important measure" to bolster growth.

The world's second-largest economy has decided to reduce the tax and fee burden of enterprises by nearly 2 trillion yuan ($298 billion) this year, higher than the average 1 trillion yuan per year over the past three years.

Specifically, the value-added tax rate - a major type of corporate tax derived from sales of goods and services - will be cut from April 1, Li said.

The VAT rate in manufacturing and other industries will be reduced by 3 percentage points to 13 percent, while the rate in transportation, construction and other industries will see a 1 percentage point cut to 9 percent.

Other industries will see adjustments in tax reduction rules, Li said.

Meanwhile, the social insurance premium rate can be decreased from the current 20 percent to 16 percent, effective on May 1, the premier said.

Li said the tax and fee cut plan is fair and efficient, as all businesses under various ownership types can directly benefit from it.

Chen Yuyu, a professor at the Guanghua School of Management at Peking University, said the tax and fee cut plan is the biggest highlight of this year's economic policies, adding that the scheduled nearly 2 trillion yuan cut is equivalent to about 10 percent of the country's annual tax revenue.

As China has made significant improvements in tax collection efficiency, it is reasonable and necessary to cut VAT rates, Chen said.

"The tax cut will not only help offset short-term downside pressure, but also nurture the vigor of market entities in the long run by giving them a fairer taxation environment."

Apart from tax and fee cuts, pushing forward administrative streamlining and impartial regulation is another way in which China can cope with downside risk and boost market vitality, Li said.

Among this year's measures to improve the business environment is to ensure that business licenses help companies operate efficiently, the premier said.

He added that the move aims to solve the problem faced by some business owners that business licenses alone do not enable them to start running their businesses, as other types of permits and licenses are still required.

The focus of government departments will shift from administrative approvals to enhanced compliance oversight, Li said.

"We also need to treat all businesses under various types of ownership as equals. As far as lending is concerned, some problems and obstacles do exist," he said.

This year, China will lower financing costs for micro and small enterprises by 1 percentage point as part of multiple measures to tackle financing difficulties, Li said.

Li said that tax and fee cuts - together with continuous measures to optimize the business environment - are expected to unleash the collective creativity of market entities, and help keep major economic indicators within a proper range and promote high-quality development.

China has set this year's GDP growth target at 6 to 6.5 percent. During the first two months, the economy remained stable, said the National Bureau of Statistics on Thursday.