(Updated)

China plans tax relief of over US$21 billion to lift economy

China plans tax relief of over US$21 billion to lift economy
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HONG KONG (May 23): China will offer more than 140 billion yuan (US$21.1 billion) in additional tax relief mainly aimed at businesses as it seeks to offset the heavy impact of coronavirus lockdowns on its economy.

The measures include additional tax rebates to companies and cuts of 60 billion yuan on passenger car purchase taxes, China National Radio reported, citing a decision from a State Council meeting chaired by Premier Li Keqiang.

Beijing will also extend an existing delay on companies' social-insurance contributions to the end of the year and expand the measure to more sectors, the report said, with that measure expected to save companies 360 billion yuan. The meeting also said that a quota for loans aimed at small- and medium-sized enterprises would be doubled.

The policies are intended to "stabilise" the economy, the meeting declared. It also said that China will improve measures to help supply chains function, ensure domestic cargo transport runs smoothly, and increase the number of domestic flights.

With regard to the slump in China's property market, the meeting said it would be up to cities to set their own support measures. The country will also launch a series of energy security projects, the meeting said, without giving details.

In early March, the government said it would provide tax relief this year worth about 2.5 trillion yuan, including 1.5 trillion yuan in rebates. The State Council declared that the new total amount of tax relief will be 2.64 trillion yuan, with the additional amount mostly consisting of tax rebates.

Beijing has widened the scope of tax relief policies in recent weeks but has not substantially revised its fiscal or financial targets for the year, which were set in early March before the Omicron variant prompted a strict lockdown of Shanghai and tight restrictions in other major urban centers such as Beijing and Shenzhen.

The report did not state how the new measures will be funded, or if they will require a revision of Beijing's official deficit target for the year.

Economists generally believe that the strict Covid-Zero policy means that China's government will not be able to meet its annual gross domestic product growth target of about 5.5%.

Bloomberg Economics last week slashed its forecast for China's growth to 2% due to lockdown impacts, estimating that the US economy might grow faster than China's for the first time since 1976 this year. The consensus in the most recent Bloomberg poll of economists was for the country to grow 4.8% in 2022.

China's financial support for lockdown-stricken areas has mostly gone to companies rather than households. The meeting chaired by Li offered no new direct household support beyond stating that social insurance payments will be raised in line with consumer price increases.

The nationwide tally of coronavirus cases is starting to trend down, after 802 new infections were reported for Sunday, the lowest in more than two months. Of its top 50 cities by economic size, only three currently have widespread restrictions in place. However, Beijing and Tianjin tightened restrictions on movement in recent days after recording an increase in cases.