China to cut VAT tax rates for manufacturing and other sectors: state media

BEIJING (Reuters) - China will lower the value-added tax rate on the manufacturing, transportation, construction, telecommunication and agricultural sectors from May 1, state radio reported, citing a cabinet meeting.

A worker polishes steel pipes at a factory of Dongbei Special Steel Group Co Ltd in Dalian, Liaoning province, China March 27, 2018. REUTERS/Stringer

China has vowed to cut levies to lighten the tax burden of individuals and businesses as it looks to boost domestic demand in a year when economic growth is projected to slow from 2017.

Beijing is pursuing what it describes as a proactive fiscal policy to help spur the economy while keeping monetary policy neutral and prudent in the face of rising risks in the country’s complex and leveraged financial system.

The VAT cuts are expected to save 240 billion yuan ($38 billion) in taxes this year, according to the state radio report, which cited China’s State Council, on Wednesday.

The tax cuts for the manufacturing and transportation sectors were flagged by Premier Li Keqiang earlier in the month but no date for implementation was given at the time.

At that time, the finance ministry said in its 2018 work report that it expects tax cuts to exceed 800 billion yuan this year.

The tax rate for the manufacturing sector will be cut to 16 percent from 17 percent, while the rate for other industries will be lowered to 10 percent from 11 percent.

“The tax cut is a positive move,” according to a Goldman Sachs research note. “However, the magnitude of the cut is relatively small and is already factored into the official fiscal budget.”

China switched to a VAT system in 2016 from a decades-old business tax, saving businesses hundreds of billions in taxes.

The government earlier this month also said it will implement personal income tax reforms this year and extend a preferential tax policy for new energy vehicle purchases.

“We expect details of other tax cut measures to be announced in the coming weeks, including the adjustment to personal income tax in terms of higher minimum threshold and exemptions for some education and health expenses and import duties, on cars and other consumer goods,” Goldman said.

($1 = 6.2915 Chinese yuan)

Reporting by Elias Glenn; Additional reporting by Ryan Woo; Editing by Nick Macfie and Sam Holmes