China cuts taxes to support domestic hi-tech companies under pressure of impending US tariffs
China has announced to cut taxes on manufacturers along with businesses ranging from transport firms and telecom carriers to farmers in a bid to bolster the country's real economy. The new move by China's newly formed cabinet is, according to analysts, mainly intended to shield competitive Chinese tech companies from being affected by tariff hikes on their products proposed by the Trump administration.

An executive meeting of the State Council chaired by Premier Li Keqiang decided to cut taxes by more than 40 billion yuan for the year this Wednesday. Premier Li emphasized the new policy would apply to the entire manufacturing industry, with an aim to upgrade the sector.

It's also made clear that foreign companies are included this time. “As long as the business is registered in China, no matter it's domestic or foreign-funded, we will treat (them) equally. (All of them) could enjoy the 'bonus' of tax cut this time,” Li was quoted as saying by gov.cn, a news portal run by China's central government.

Based on the tax cut policy, from May 1, the value-added tax (VAT) rate for manufacturers would be decreased to 16 percent from the original 17 percent, while the rate for industries including transportation, construction, telecom services and farming will be reduced to 10 percent from 11 percent.

Meanwhile, the new policy also considerably raises the threshold for small taxpayers from 500,000 yuan and 800,000 yuan to a unified five million yuan, under which, more small and micro businesses get to enjoy more preferential VAT rate of as low as three percent. And the third regulation is for enterprises in the advanced manufacturing industry, modern service sector and power grid, which will get more tax rebates.

It was previously reported by Chinese media that the tax cut reform was kicked off long ago —from the 18th National Congress of the Communist Party of China in 2012 to the end of 2017, the government had cut taxes worth 2.1 trillion yuan.

Wang Jun, the director of the State Administration of Taxation addressed the media on Friday, indicating that merely in the year 2017, China's tax savings had exceeded 380 billion yuan. The China News Service reported that with the strengthened efforts, the tax-to-GDP ratio in the country had dropped 1.2 percentage point to 17.4 percent between 2012 and 2017.

Entrepreneurs endorsed the statement of Wang. “In 2017, the company I worked for had enjoyed tax cuts worth nearly 48.75 million yuan, so we had become more proactive in investing into research and development,” Liu Qingfeng, chief executive of iFlytech Co., Ltd, a national software company in the artificial intelligence sector, told China News Service. Yu Ming, the managing director of Melinda Quantum Co in the new energy sector said from 2011 to 2015, his company had benefited from preferential tax policies and therefore allocated enough capital for boosting innovation.

According to Sinolink Securities, a Japanese media, Chinese government has rolled out the latest tax cut policy to copy with Trump administration's cracking down on Chinese tech companies. It commented the policy would be good news for manufacturers of high performance products and hi-tech companies supported by China's 'Made in China 2025' strategy.

In an interview with Bloomberg, Peter Navarro, the director of the White House National Trade Council, said the list of products that the US plans to impose tariffs on would cover industries included in the “Made in China 2025” strategy,

It's reported the US government has become alert to rising competition from China in the hi-tech field. According to statistics of Asia Development Bank, in 2014, Chinese exports in related industries like medical equipment, aviation and telecom facilities had surpassed that of Japan, occupying 44 percent of the total exported from Asian countries. By mid-2017, there are 592 Chinese firms engaged in the artificial intelligence sector, only next to the total number of AI companies in the US.

Chinese observers believe the Trump administration has rolled out its tax cut plan for similar purposes. Xu Shanda, former deputy director of the State Administration of Taxation, wrote a commentary for guancha.cn, a Chinese website, analyzing Trump had kicked off his magnificent tax cut plan last December to entice US tech companies to bring back their profits made overseas.

“The plan is not merely to attract foreign investment into the US manufacturing industry but to entice hi-tech companies to invest back into the research and development projects in the US,” Xu said. Based on the current tax law, 35 percent of profits made overseas would be handed to the government if the money is coming back. Now, the plan signed by Trump lowers the figure to 8 percent of profit being paid as tax, which aims is to persuade US companies to bring back home their profits and capital for more R&D.   

 


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