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)