More tax cuts for small firmshttps://img2.chinadaily.com.cn/images/201901/10/5c368ecca3106c65fff465cd.jpegChina will unveil larger-scale tax cuts and tax exemptions for small and micro businesses, a State Council executive meeting chaired by Premier Li Keqiang decided on Wednesday.
"Amid significant downward pressure, it is essential to introduce tax and fee cuts for small and micro firms, as this will be conducive to boosting employment and shoring up private businesses at the same time," Li said.
The meeting on Wednesday rolled out a host of inclusive tax breaks for small and micro businesses.
The eligibility of small and low-profit businesses to benefit from the preferential corporate tax will be significantly expanded, and deeper corporate tax cuts will be introduced. Small and low profit businesses with an annual taxable income of less than 1 million yuan ($146,500) and between 1 million to 3 million yuan will be eligible to have their tax calculated based on 25 percent or 50 percent of their taxable income.
This is expected to reduce their tax burden to about 5 to 10 percent. The adjusted tax incentives are expected to cover 95 percent of corporate tax payers, 98 percent of which will be private businesses.
At the same time, the VAT threshold on small-scale taxpayers will be raised from 30,000 yuan to 100,000 yuan of monthly sales.
Provincial-level governments will be given the authority to cut taxes up to 50 percent for small-scale VAT taxpayers under several local tax items, including resources tax, as well as education and local education surcharges.
The scope of tax incentives applied to investment in high-tech startups will be expanded to give more tax breaks to venture capital firms and angel investors investing in these businesses.
The above tax incentives will cover all taxes incurred since Jan 1, and will be effective for a tentative three years. At the same time, central government finance will provide stronger general transfer payment to local authorities to make up for possible funding gaps at local levels caused by large-scale tax and fee cuts.
"Since last year, the government has spent within its means and enacted several rounds of tax incentives for small and micro firms. The latest round of tax cuts will be the most substantial so far, and it is also appropriately structured," Li said, "The government must tighten its belt to give more benefits to businesses and energize the market."
According to dictionary-saying economy is how the government collects and raise money and spend it on the public service for the normal running of the whole society! So constant judgement on tax is routine job for the ruling authority which certainly is a kind of technique on politics! :P This will not work!
Encouraging business to start is important.
Giving tax cuts here and there will not raise economic growth through real growth.
With this approach, one needs is to create ten small companies instead of one single large company.
Does that make senses?
This is only about corporate income tax, which not all companies have to pay anyway.
For startups, the individual income tax reform is more important than small changes to CIT.
With IIT reform the previous 3500 RMB monthly tax deduction was now raised to 5000 RMB, meaning that if you earn less than 5000 RMB a month, you don't need to pay any IIT. In percentages this is a huge change and the IIT reform includes also other measures.
This applies for employees, but also to business owners who take their part as salary rather than profit dividends.
This is important for startup businesses, because their owners often take little to no salary from the small initial income that starting businesses have. This encourages to start a business, and to hire fresh graduates who don't have big salary expectations.
In particular I think this boosts employment outside 1-2 tier cities, where 5000 RMB a month is not terribly bad salary. I'd expect people to think twice between taking a 5000 RMB job close to their hometown, rather than going after 8000 RBM job in a big city, and losing the difference to higher rent, living expenses and taxes.