Corporate tax cuts to ease burden for small enterprises

A Chinese clerk counts RMB (renminbi) yuan banknotes at a bank in Huaibei city, East China's Anhui province, January 22, 2015.[Photo/IC]

A series of new corporate tax cuts are expected to reduce the tax burden on small businesses by more than 100 billion yuan ($15.64 billion), the Ministry of Finance said on Friday.

An executive meeting of the State Council on Wednesday decided to increase the number of businesses eligible for a 50 percent reduction in their corporate tax.

The policy, effective through the end of 2017, will extend firms that are eligible for a 10 percent tax rate to those with an annual taxable income below 300,000 yuan from 200,000 yuan. Those above the 300,000 yuan threshold are levied a 25 percent rate.

In addition, the State Council also extended the exemption of value-added tax and business tax for small businesses with less than 30,000 yuan in monthly sales. That exemption was set to expire at the end of this year.

It is the second time this year, and the fifth time since 2010, that the government has raised the threshold for businesses to qualify for the tax reduction, in a move which analysts said underscored Beijing's eagerness to bolster growth and create jobs amid the current economic slowdown. The government increased that threshold to 200,000 yuan from 100,000 yuan in February.

"The move is designed to stimulate the market, boost employment and encourage mass entrepreneurship," said Wang Jianfan, director of the tax policy department at the Ministry of Finance, who said the tax breaks would have a "limited" impact on fiscal income.

Micro and small firms create more than 70 percent of new jobs each year, but they are required to pay a variety of levies, such as corporate income tax, business tax and value-added tax, along with fees imposed by the local and central governments.

Last year, 2.46 million small businesses benefited from cuts in corporate income tax and 22 million taxpayers benefited from business tax and VAT exemptions, which saved them 61.2 billion yuan, according to the State Administration of Taxation - still a small fraction of the 7.3 trillion yuan the government brings in through all the three. Many business owners and commentators have been calling for more tax breaks for larger businesses, too, as a good way of helping the wider economy.

Liang Hong, chief economist for China International Capital Corp, suggested broader tax cuts would be a better policy than some of the other pro-growth measures that have been tried.

"There is huge room to cut Chinese enterprises' tax burden," she said, adding that corporate taxes accounted for 47.4 percent of total business revenue in 2012. "The excessive, heavy indirect tax burden has severely hampered corporate investment, research and development," Liang said.