China’s pledge to extend additional support to vulnerable small businesses will be more targeted, with the broad policies aimed at offsetting the economic impact of the coronavirus likely to be scaled back as conditions improve, analysts said.
With Beijing still concerned about employment and social stability, last week Premier Li Keqiang pledged to continue the broad business tax cuts enacted in the past two years, while extending the duration of several existing temporary support policies and also adopting new plans for structural tax reductions.
However, analysts believe the efforts, including a broad business tax cut, are likely to be scaled back as the national economy improves and will gradually give way to tax relief targeted specifically at small businesses.
These targeted efforts will be joined by structural reforms over the next five years aimed at ensuring equal market access and fair competition for small private sector businesses with state-owned firms, analysts said.
“Generally, the proportion of the private economy [to the overall economy] hasn’t declined,” said Ding Shuang, Greater China economist at Standard Chartered Bank.
“It would be better to provide them a level field for competition and particularly reduce the implicit preferential treatment for state-owned enterprises.”
As part of the support to China’s legions of small-scale taxpayers, including caterers, street vendors, travel agents and transport firms, the value-added tax (VAT) threshold will be raised from 100,000 yuan (US$15,400) to 150,000 yuan of monthly sales.
The income tax for micro and small enterprises, as well as self-employed individuals, will also be halved on annual taxable income below 1 million yuan (US$153,000).
Small businesses will also receive relief as financing guarantee fees will be reduced, while large commercial banks will be asked to raise inclusive loans to micro and small businesses by more than 30 per cent this year to ensure adequate credit availability.
Beijing also encouraged authorities in regions particularly hit by the impact of the coronavirus to lower rental fees on state-owned properties for small service sector businesses and for self-employed individuals.
Liu Xuezhi, a senior researcher with the Bank of Communications, said the uncertainty caused by the coronavirus requires further support for the small businesses that generate most of the nation’s jobs.
However, “it should target those hard-hit sectors and regions,” he added. Tax cuts have often been a hot topic at the “two sessions”, the meeting of the National People’s Congress and Chinese People‘s Political Consultative Conference which began in Beijing last week, during which the government solicits opinions from lawmakers and political advisers on its economic plan.
This year, Cai Zhongguang, deputy head of the China Association of Small and Medium-sized Enterprises, asked for the current corporate income tax rate of 25 per cent to be lowered.
Beijing slashed taxes and fees by 2.3 trillion yuan (US$354 million) in 2019 through a personal income tax cut and VAT reforms before adding another 2.6 trillion yuan in tax reductions for pandemic-hit businesses last year.
But this year, Beijing has shifted its policy emphasis to fiscal sustainability, with the budget deficit-to-gross domestic product ratio lowered to 3.2 per cent from 3.6 per cent last year, while local government bond issuance was trimmed and a special central government Covid-19 bond issue not repeated.
Liu Xiaobing, a lawmaker from the Shanghai University of Finance and Economics, said Beijing’s reluctance to set a specific tax cut target, unlike those seen in each of the previous two years, indicated a preference for structural adjustments among taxpayers.
“State-owned enterprises could see a rise in their taxes, while the private economy could receive a cut. Small and medium-sized enterprises will receive a tax cut, but large ones won’t,” he said.
A survey of nearly 18,000 enterprises by the Chinese Academy of Fiscal Sciences, an affiliate of the Ministry of Finance, indicated that the corporate tax burden has seen a large decline in the past two years.
The ratio of tax expenditure to operational revenue fell to 3.7 per cent in the third quarter of last year from an average of 4.78 per cent between 2017-19, according to results published in January.
In a monthly survey of 500 small and medium-sized enterprises, Standard Chartered Bank found that business owners had turned more cautious considering the uncertainty to the outlook caused by the pandemic.
The bank’s small business confidence index slowed to 51.5 in February from 52.3 a month earlier, given the large-scale travel restrictions put in place during the Lunar New Year holiday period that started in early February, following a high of 54.0 in September.
Source: https://www.scmp.com/economy/china-economy/article/3124584/china-two-sessions-help-coronavirus-hit-small-businesses