China releases package of tax relief measures to support small firms

BEIJING, Aug 2 (Reuters) – China’s finance ministry on
Wednesday unveiled a package of tax relief measures to support
small businesses and rural households, as the world’s
second-largest economy struggles with a post-COVID recovery.

Amid weak demand both at home and abroad, China’s economic
recovery has lost steam since April, adding pressure on
policymakers to revive the economy as some small firms are
particularly struggling with fewer orders, financing
difficulties and shrinking profits.

The finance ministry said it would extend a value-added tax
(VAT) cut for small taxpayers for an additional four years until
the end of 2027, according to a statement.

The ministry would exempt value-added tax for small
taxpayers with less than 100,000 yuan ($13,921.95) in monthly
sales and cut the rate on taxable sales revenues to 1% for those
normally eligible for a 3% rate, the statement said.

Those offering guarantees of borrowings or bond issues by
rural households, small firms and individual businesses would
also be exempted from paying the VAT on revenue generated from
the guarantees, the ministry said.

Interest income deriving from financial institutions’
micro-lending to small and micro-sized firms and individual
businesses would also be exempted from VAT until the end of
2027, said the ministry in a separate statement.

Micro loans entitled to the exemption refer to lending to
businesses of those types with no more than 10 million yuan in
credit lines.

The ministry also announced an extension until end-2027 of
preferential tax terms applying to technology start-ups with no
more than 300 employees with gross assets and annual sales
revenue both not exceeding 50 million yuan.

On Tuesday, multiple ministries, regulators and the central
bank pledged more financing support to small businesses as
policymakers are pressured to urgently revive the private sector
amid a flagging economic recovery.

China had used tax cuts to shore up small firms last year
when stringent anti-virus measures squeezed them hard.
($1 = 7.1796 Chinese yuan renminbi)
(Reporting by Qiaoyi Li, Ellen Zhang and Ryan Woo; Editing by
Himani Sarkar and Jamie Freed)