China's "aggressive" tax cut plan for 2019 highlights the central government's determination to promote high-end manufacturing and could motivate enterprises to increase investment despite the temporary slowdown in industrial profits, experts said on Tuesday.
The comments came after Premier Li Keqiang said in the Government Work Report on Tuesday at the opening of the second session of the 13th National People's Congress that the nation aims to reduce the tax burden and social insurance contributions of enterprises by nearly 2 trillion yuan ($298.4 billion) this year.
Fan Yong, a professor at Central University of Finance and Economics, said the tax reduction goal sends a clear signal that the government is doing its best to buoy the development of manufacturers.
According to Li's report, China will deepen value-added tax reforms, reducing the current rate of 16 percent in manufacturing and other industries to 13 percent, and lower the rate in the transportation, construction and other industries from 10 percent to 9 percent.
"A 3 percentage point tax cut for manufacturing companies is far more aggressive than most of us had expected, and will considerably reduce production costs. Such a strong and clear message from the government will also improve enterprises' prospects for future growth and encourage them to invest more into the real economy."
In his report, Li said that to better reduce tax burdens on companies, especially small and micro businesses, the government will also lower the share of urban workers' basic elderly care insurance borne by employers.
The move comes after China cut about 1.3 trillion yuan in taxes and fees last year, including the value-added tax, individual income taxes and corporate income taxes for small and medium-sized firms.
Cheng Shi, chief economist at ICBC International, said that bigger-than-expected steps to slash taxes can help manufacturers move upward in the global industrial value chain and better deal with temporary difficulties.
According to the National Bureau of Statistics, industrial profit in December retreated by 1.9 percent from a year earlier, worsening from a 1.8 percent drop in November. Against such a backdrop, entrepreneurs said the aggressive tax reduction will ease their burden and stabilize their expectations for future operations.
Nan Cunhui, chairman and founder of Chint Group, China's leading industrial electrical equipment maker, said the new round of tax-cutting policies are more inclusive, practical and targeted, which will help strengthen companies' competitiveness.
Lei Jun, chairman and CEO of Chinese smartphone maker Xiaomi Corp, said slashing taxes will inject new vitality into companies, boosting their enthusiasm to innovate. And it's likely to ignite a new creativity boom.
