ASSESSMENTS

China Opts for Tax Cuts to Jolt Its Economy Awake

Mar 13, 2019 | 11:00 GMT

Chinese President Xi Jinping is served tea on March 12, 2019, during a session of the National People's Congress in Beijing.

President Xi Jinping, shown here being served tea during a March 12 session of the National People's Congress in Beijing, and the Chinese government are turning toward tax cuts and other fiscal policies to address China's economic challenges.

(KEVIN FRAYER/Getty Images)

Highlights

  • With its economy slowing, China will rely more on fiscal policies — including tax relief — to rebalance its economy to bolster private consumption and investment.
  • However, tax relief, coupled with the overall slowdown, will result in tighter budgets for local and central governments, particularly in the central and western regions.
  • Beijing will issue more local bonds, increase fiscal transfers and expand the local tax base with new property tax reforms in an effort to ease local governments' financial burden.
 

Spurred in part by its slowing economy, China is gathering steam in its efforts to rebalance its tax structure. During the country's annual legislative session this month, Chinese Premier Li Keqiang announced an expanded 2 trillion yuan ($298 billion) reduction -- or 10 percent of China’s total government budget revenues last year -- in taxes and fees for individual taxpayers and private business this year. Together with a smaller package last year, the measures could free 100 million individual taxpayers (mainly lower- and middle-class citizens) from income tax and lower the tax burden for private enterprises by as much as 20 percent. The tax package is designed to ease the growing financial stress on private businesses and kick-start flagging consumption amid the Chinese economy's struggles with high debt and the lack of impact from traditional government-led investments. Although the central government is on a relatively sound financial footing, growing imbalances...

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