China will lessen the tax burden on small businesses, the government has announced, as part of a package of measures aimed at boosting the slowing economy.
Small firms with monthly sales of less than 20,000 yuan (US$3,260) will be exempt from paying turnover tax and value-added tax (VAT) from Aug. 1, the central government said late on Wednesday.
VAT is levied on the difference between a commodity’s cost and its retail price.
“Small businesses ... are playing an important role in promoting economic development and market prosperity as well as expanding employment,” the statement said in explaining the move.
It was among a series of measures to support the economy unveiled by Chinese Premier Li Keqiang (李克強) at a Cabinet meeting on Wednesday.
The tax exemptions will benefit more than 6 million small companies, the statement added.
China’s economy expanded 7.5 percent year-on-year in the second quarter, slowing from 7.7 percent in the previous three months, raising worries it could be headed for a sharp downturn.
Among other steps, the government will set up a fund for railway development, offer tax rebates and keep the yuan’s exchange rate at a “reasonable” level to boost international trade, it said.
The State Council is targeting 690 billion yuan of fixed-asset investment in the railway industry this year, the Beijing News reported yesterday, citing a summary of the meeting. That compares with a 650 billion yuan figure given in a rail-bond prospectus published on Friday last week.
For the five years through 2015, the Cabinet set a goal of investing 3.3 trillion yuan, or 500 billion yuan more than in the previous plan, according to the Beijing News.
Lu Ting (陸挺), an economist with Bank of America Merrill Lynch, called the new policies a “small stimulus.”
“Premier Li’s team has been surely working around the clock to arrest the slowdown,” Lu wrote in a research note yesterday. “These three measures will have limited direct impact on boosting aggregate demand in the short term, but they can surely help boost confidence.”
Additional reporting by Bloomberg