Easing firms’ burden to boost the economy

The government has further eased enterprises’ economic burden by reducing the share borne by employers for urban workers’ basic aged-care insurance from 19 percent to 16 percent from May 1. It also has reduced the value-added tax (VAT) rate for manufacturing and other industries from 16 percent to 13 percent, and for industries such as transportation and construction from 10 percent to 9 percent from April 1.

The corresponding measures the government has taken along with these moves suggest the enterprises’ tax burden will not increase. The reductions in VAT and other taxes and fees, which exceed public expectations, will not only reduce the enterprises’ economic burden — including labor cost — but also enable them to give full play to their potential

and improve their business performance.

Besides, small enterprises with monthly sales of less than 100,000 yuan have been exempted from paying VAT and urban maintenance and construction fees.

The overall amount of tax and fee cuts this year will add up to nearly 2 trillion yuan ($296.98 billion) with the reduction in VAT accounting for about a half of that.

The government has also introduced general benefit and structural tax cuts to especially reduce the tax burdens of manufacturing and small and micro enterprises. These measures will help make the taxation structure fairer for small and micro enterprises, and thus create better opportunities for them to become bigger and stronger.

As for the individual income tax structure, it has transformed from a classified tax system into a classified and comprehensive combined tax system thanks to reforms, with the scope for imposing a low tax rate remarkably extended. Also, the tax burden for middle- and low-income groups has been largely reduced — and the introduction of special deductions for specific types of expenses from the taxable income has benefited all individual income tax payers.

Tax reductions account for 70 percent of the total amount of tax and fee cuts. Plus, the government has simplified the procedure of paying taxes, which has not only reduced the enterprises’ overall burden, but also shows the government remains committed to improving public services.

Since many of the tax and fee reductions apply to small and micro enterprises, private enterprises stand to gain the most from the move. And by helping small and micro enterprises to ease their economic burden, the government aims to promote employment.

The tax cuts will benefit enterprises and inject more vitality into the market. To fully and fairly evaluate the effects of the tax and fee cuts, however, we also have to take into consideration the effects of the past taxation measures. The tax reduction amounts have increased annually — for example, the total amount of tax cuts was more than 1 trillion yuan in 2017 and 1.3 trillion yuan in 2018, and this year it is estimated to be 2 trillion yuan.

The taxation system reform has been progressing well. For instance, the collection cost for some taxes is very high while the total revenue from those taxes is relatively low. For such taxes, the tax authorities should simplify the tax collection procedure or even exempt the taxable entities from paying such taxes. And that is precisely what the tax authorities have done by introducing a preferential tax policy for small and micro enterprises.

The new round of tax and fee cuts will help create a better business environment for enterprises. And the new favorable tax and fees policies the authorities are likely to introduce to further ease the enterprises financial burden will help China’s economy to grow sustainably. The author is a research fellow at the National Academy of Economic Strategy, Chinese Academy of Social Sciences. The views don’t necessarily represent those of China Daily.