Fi­nance min­istry rolls out tax re­lief for debt-laden Chi­nese com­pa­nies

China Daily (Hong Kong) - - BUSINESS - By WANG YANFEI wangyan­fei@chi­

The Min­istry of Fi­nance on Tues­day is­sued pref­er­en­tial tax poli­cies for com­pa­nies en­gaged in debt-re­duc­ing cor­po­rate re­struc­tur­ing.

Pref­er­en­tial tax poli­cies would be ap­plied to mul­ti­ple trans­ac­tion ac­tiv­i­ties while com­pa­nies go through bank­ruptcy, merg­ers and ac­qui­si­tions, and liq­ui­da­tion.

Such poli­cies in­clude de­ferred tax pay­ments and tax pay­ments in in­stall­ments for non-mon­e­tary as­sets, ac­cord­ing to a no­tice pub­lished on the min­istry’s web­site.

Value-added tax will not be im­posed on trans­fers of fixed as­sets and land-use rights, ac­cord­ing to the no­tice.

Lo­cal gov­ern­ments are re­quired to strictly im­ple­ment the tax poli­cies, in or­der to help lower the costs and cre­ate a fa­vor­able en­vi­ron­ment for cor­po­rate delever­ag­ing, the no­tice said.

The no­tice was is­sued af­ter the State Coun­cil, the na­tion’s cab­i­net, is­sued a guide­line in Oc­to­ber to en­cour­age com­pa­nies to adopt mar­ket-ori­ented debt-for-eq­uity swaps, an im­por­tant mea­sure to re­duce cor­po­rate lever­age.

The guide­line stressed that the gov­ern­ment would not pro­vide free lunches to loss­mak­ing “zom­bie” com­pa­nies and would not in­ter­vene in the com­pa­nies’ re­struc­tur­ing process.

Zhang Lianqi, a fi­nan­cial ex­pert who con­sults with the min­istry, said the no­tice of­fers clar­ity on de­tails like how the gov­ern­ment will use taxes as a tool to ef­fect changes and what trans­ac­tions are el­i­gi­ble for pref­er­en­tial poli­cies.

“Tax poli­cies will pro­vide pos­i­tive in­cen­tives for en­ter­prises to lower their debt and help them go through the (cur­rent) dif­fi­cult pe­riod amid down­ward eco­nomic pres­sure. The poli­cies will par­tic­u­larly help loss-mak­ing com­pa­nies rid­den with over­ca­pac­ity and fac­ing debt prob­lems for long,” said Zhang.

Zhang ex­pects the gov­ern­ment will roll out more tar­geted poli­cies for en­ter­prises in cer­tain sec­tors, and suc­cess­ful cor­po­rate re­struc­tur­ing cases will be stud­ied in fu­ture.

“As a key part in the im­ple­men­ta­tion of sup­ply-side re­forms, delever­ag­ing would con­tinue to be among China’s im­por­tant tasks next year,” said Zhang.

Marie Diron, as­so­ciate man­ag­ing di­rec­tor at Moody’s In­vestors Ser­vice, said it is cru­cial to en­sure sup­port­ive poli­cies ac­tu­ally ben­e­fit ef­fi­cient en­ter­prises with high pro­duc­tiv­ity, not loss-mak­ing ones.

“It takes time for China to see how poli­cies would sup­port the na­tion’s re­form process,” she said.

Mount­ing cor­po­rate debt has be­come one of the coun­try’s big­gest chal­lenges, rais­ing the specter of a po­ten­tial fi­nan­cial melt­down, the In­ter­na­tional Mon­e­tary Fund had warned in its an­nual re­port on the na­tion’s econ­omy ear­lier this year.

The Bank of In­ter­na­tional Set­tle­ments es­ti­mated that China has $18 tril­lion in cor­po­rate debt, which is equiv­a­lent to about 169 per­cent of GDP, com­pared with per­cent of the 71.7 per­cent of US and 100.5 per­cent of Ja­pan.

The poli­cies will par­tic­u­larly help loss-mak­ing com­pa­nies rid­den with over­ca­pac­ity and fac­ing debt prob­lems for long.” Zhang Lianqi, a fi­nan­cial ex­pert who con­sults with the Min­istry of Fi­nance

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