Bigger Tax and Fee Cuts in PipelineChina is ready to effect more and bigger tax and fee cuts this year and proceed with additional targeted fiscal spending in key areas to safeguard steady economic growth, while the intensity of transfer payments from central to local governments will also be increased, China's finance minister said on February 22. In an interaction with media ahead of the two sessions on February 22, or the annual sittings of China's top legislature and the top political advisory body, Liu Kun, China's finance minister, said this year, the government will carry out tax and fee cuts of a more sizable scale, hoping that it will generate greater sense of gains for market players. China to launch bigger tax cuts in 2022 According to Liu, China's tax and fee cuts will be larger in 2022 than last year's. Expenditure will support key areas including technology, environment protection, people's livelihoods, major regional strategy and modern agriculture. China cut about 1.1 trillion yuan ($173.9 billion) of taxes and fees in 2021 amid the country's efforts to bolster economic growth and strengthen market vitality, according to the top tax authority. Last year, the country rolled out a slew of preferential policies on deducting and deferring taxes and fees to shore up the industrial economy and support micro, small and medium-sized enterprises, Wang Daoshu, deputy head of the State Taxation Administration, told a press conference. A total of 216.2 billion yuan of tax payments were deferred for micro, small and medium-sized enterprises in the manufacturing sector last year, Wang said. He added that enterprises in the coal, power and heating industries saw 27.1 billion yuan in tax cuts, rebates and deferrals. China's tax income, excluding export tax rebates, stood at 15.46 trillion yuan and achieved the government's annual target, Wang noted. Tax income accounted for 15.1 percent of the country's gross domestic product in 2021, edging down 0.1 percentage points and 3 percentage points from that of 2020 and 2015, respectively, indicating that tax burdens on market entities were further eased, Wang said. Small and medium-size enterprises (SMEs) will be one of the major beneficiaries of the tax cuts. In 2021, all domestic value-added tax and corporate income tax for manufacturing SMEs were deferred. The central government also allocated 3 billion yuan in awards and subsidies to support financing for SMEs, said Yu Weiping, vice finance minister. Meanwhile, general transfer payments to local governments will be greatly increased this year, and lean towards areas facing difficulties and underdeveloped areas, Liu said. Liu said local governments will continue to issue special bonds. In January, local governments issued 484.4 billion yuan in special bonds under the 2022 advance quota of 1.46 trillion yuan, for use in transport, city planning, industrial parks, and government-subsidized housing. The country's fiscal revenues constituted 20.25 trillion yuan in 2021, up 10.7 percent year on year. Finance minister assures targeted fiscal spending, efficient transfer payments Liu reiterated that this year, the intensity of fiscal spending will be kept at a proper level with priorities built around technological breakthroughs, environmental protection, basic livelihoods, key regional strategies, modern agriculture and key projects under the country's 14th Five-Year Plan (2021-25). Also, he said the scale of transfer payments from central to local governments will be increased by a large margin, with a focus on ensuring basic livelihoods, salaries and normal operations of local-level governments. "This year, the central government will notably increase the size of transfer payments, especially general transfer payments, from central to local governments, and such efforts will continue to favor localities with difficulties and underdeveloped regions," Liu said. He also said governments at all levels will continue to tighten their belts this year and fiscal discipline at local levels will be enhanced further. Shi Yinghua, a professor at the Chinese Academy of Fiscal Sciences, said the larger scale of transfer payments this year from the central government will seek to offset the pressure that greater tax and fee cuts may generate for local governments. "With this year's upcoming larger scale of tax and fee cuts, compounded by a slowing economic growth, the growth of fiscal revenue of local governments is also likely to slow down," Shi said. "More intensified tax and fee cuts, in the long run, will be conducive to the growth of smaller businesses and manufacturing upgrade, yet they are likely to dent local fiscal revenue in the short term." Liu noted in particular that to face the challenge of downward pressure, fiscal policies have already been loaded in advance. For instance, among the 1.46 trillion yuan earmarked to be raised from special local government bonds, some 484.4 billion yuan has been released in January. Bond proceeds were mostly spent on key areas like infrastructure facilities related to transportation, city planning, industrial parks and on improving affordable housing facilities. Fee cuts stepped up to support market entities China will intensify tax and fee cuts with targeted measures in 2022 to bring benefits for market entities and bolster economic growth, according to the Finance Ministry. In recent years, the country has given full play to tax and fee deductions in vitalizing market entities and shoring up economic development, said Xu Hongcai, vice minister of finance. "On the surface, tax and fee cuts can slice fiscal revenue, but in essence, the move has propelled economic growth and a subsequent increase in fiscal revenue," Xu said. Official data shows that China now boasts over 150 million market entities, while a total of 13.26 million firms were newly established and have engaged in tax-related activities in 2021, up 15.9 percent year-on-year. The implementation of tax and fee cuts policies has reduced the burden on market players and strengthened their resilience, Xu said. To further vitalize market entities, this year the country will intensify tax-deduction efforts and launch targeted support measures while focusing on the high-quality development of the manufacturing industry, smaller businesses and scientific innovation. Preferential tax measures should move in tandem with other proactive fiscal, monetary and industrial policies to help market players tide over difficulties, according to Xu. Amid the tax and fee cuts, the growth of local-government revenue will slow down, Xu noted, adding that the central government will significantly increase transfer payments to local governments. These funds will mainly flow to less developed regions, those in difficulty, and those where fiscal revenue faces mounting pressure from tax and fee cuts, he added. The country will maintain appropriate levels of fiscal expenditure while giving priority to key sectors, including sci-tech breakthroughs, environmental protection and major regional strategies, Liu said. Measures will be taken to allocate local government special bonds in a reasonable manner, Liu said, noting that the country issued 484.4 billion yuan in January to fund projects in the transport, industrial park infrastructure and other key areas. The figure accounted for one-third of the 1.46 trillion-yuan funds that were allocated late last year from the country's 2022 quota for local government special bonds. The advance allocation is aimed at stimulating effective investment and mitigating economic pressure, Xu added.
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