Fiscal steps expected to blunt effect of epidemic

0 Comment(s)Print E-mail China Daily, March 4, 2020
Adjust font size:

Fiscal steps expected to blunt effect of epidemic -

Employees work on a production line of an automaker in Qingzhou, Shandong province. [Photo/China Daily]

Growing fiscal actions taken by China are expected to help cushion the economic fallout from the novel coronavirus pneumonia outbreak, and more aggressive tax and fee cuts are likely to rescue companies with financial difficulties, the nation's tax authorities said on Tuesday.

Fiscal policies already enacted, such as tax cuts and exemption or reduction of social security fees paid by companies, will be reevaluated in a timely way, and new measures may be taken, depending on how quickly the virus is contained and its impact on overall economic growth, said Wang Jianfan, director-general of the Ministry of Finance's Tax Policy Department.

"Additional tax and fee cuts are possible to facilitate the resumption of production," he said at a news conference. The tax and fee reduction policies launched in 2019 will continue, such as lowering the value-added tax rate to 13 percent from 16 percent and providing preferential tax rates to high-tech companies, Wang said.

To support small businesses hit by the epidemic, the ministry adopted targeted tax cuts that started in March, exempting small-scale taxpayers from VAT in Hubei province, the epicenter, until the end of May. The VAT rate for small-scale taxpayers outside Hubei has been lowered from 3 percent to 1 percent during the same period.

The emergency fiscal action supports goods production and logistics, issues that are "much targeted "for support during the epidemic, Wang said.

The State Taxation Administration decided to extend the tax reporting period by one week, until March 23, to ease the financial difficulties of taxpayers.

Other actions include allowances for companies that aim to reduce bankruptcies, which is a prioritized target, said Liu Shangxi, head of the Chinese Academy of Fiscal Sciences under the ministry.

Central and local governments have increased spending to prevent and control the effects of the epidemic, setting aside 108.75 billion yuan ($15.6 billion) as of Monday. Some of the money was for smaller businesses to accelerate production resumption, according to the ministry.

Given the strong spending, some provincial governments were expected to see extended funding in February and March, leading to growth of fiscal deficits. Liu said it is uncertain whether the recovery after the epidemic wanes will provide the funds to make up the gap.

"Slower economic growth may increase the risk of zero growth or even a contraction in general budgetary revenue of Chinese regional and local governments this year," said Fu Yubin, an analyst with the Moody's Investors Service.

Under the circumstances, the central government needs to provide financial support to ensure that all local governments are able to meet their spending requirements, he said.

Fu Jinling, head of the Social Security Department of the Ministry of Finance, said on Tuesday that the outbreak has been a shock to local governments' fiscal balance, but that will be temporary. "The overall size of fiscal budgets is large, and they have enough spending flexibility to handle economic shocks."

"The government has included uncertainties into the budget-making process as it usually does. So far, spending for epidemic control can be guaranteed, and the impact on fiscal balance is under control," Fu said.

The ministry will adjust the spending structure and increase the transfer of funds to local governments to cushion economic risks, officials said.

The central government also is likely to continue to loosen restrictions on issuance of bonds to enable local governments to address their revenue shortfalls and relieve pressure on their already sizable funding gaps, according to Moody's.

Follow on Twitter and Facebook to join the conversation.
ChinaNews App Download
Print E-mail Bookmark and Share

Go to Forum >>0 Comment(s)

No comments.

Add your comments...

  • User Name Required
  • Your Comment
  • Enter the words you see:   
    Racist, abusive and off-topic comments may be removed by the moderator.
Send your storiesGet more from