China unveils tax relief package to aid small businesses

The Ministry of Finance in China has recently unveiled a comprehensive package of tax relief measures aimed at providing support to small businesses and rural households in the country.

These measures come in the wake of the challenges faced by the world's second-largest economy in its post-COVID recovery.

The economic rebound in China has shown signs of losing momentum since April, primarily due to weakened demand both domestically and internationally.

As a result, policymakers are under increasing pressure to stimulate economic growth, especially considering the plight of small firms that are grappling with reduced orders, financing obstacles, and declining profits.

One notable measure entails extending the value-added tax (VAT) cut for small taxpayers for an additional four years, extending until the end of 2027.

Under this initiative, small taxpayers with monthly sales below 100,000 yuan will be entirely exempted from paying VAT, while those eligible for a 3% rate will only need to pay a reduced 1% rate on taxable sales revenues.

Furthermore, entities that provide guarantees for borrowings or bond issues by rural households, small firms, and individual businesses will also receive VAT exemptions on revenue generated from these guarantees.

Additionally, interest income arising from financial institutions' micro-lending to small and micro-sized firms and individual businesses will be exempt from VAT until the end of 2027, subject to the condition that the micro loans do not exceed credit lines of 10 million yuan.

The package of tax relief measures also includes an extension until end-2027 of preferential tax terms for technology start-ups with no more than 300 employees, ensuring that firms with gross assets and annual sales revenue not exceeding 50 million yuan receive continued support.

In conjunction with these tax relief initiatives, multiple ministries, regulators, and the central bank have pledged to provide additional financing support to small businesses, as the revival of the private sector is deemed imperative for bolstering the overall economic recovery.

Notably, China had previously utilized tax cuts to aid small firms during the height of the pandemic last year, mitigating the adverse impacts of stringent anti-virus measures on these enterprises.

(Note: The exchange rate provided is $1 = 7.1796 Chinese yuan renminbi.)