China announces new tax cuts to help boost spending as economic growth stalls

(VCG via Getty Images)
  • Chinese authorities announced plans for a range of new tax deductions over the weekend.
  • The new tax rules — scheduled to go into effect from January 1, 2019 — are aimed at boosting consumer activity as economic growth stalls.
  • However, one analyst said the new measures may not go far enough to offset the negative headwinds facing China’s economy.

China is set to introduce a range of new allowances that could save taxpayers tens of thousands of yuan a year, as Beijing looks to boost consumer spending amid a stinging trade war with the United States and slowing economic growth.

Under the proposals released by State Administration of Taxation on Saturday, people will be able to claim deductions for six types of expenses in addition to the existing ones for pension and insurance contributions, and the universal personal allowance of 5,000 yuan (US$720) a month.

From January 1, 2019 – assuming the new rules are approved – homeowners will be allowed to claim up to 1,000 yuan a month against mortgage interest payments on a first property, while those in rented accommodation will get a tax-free allowance of 800 to 1,200 yuan a month.

Under the new tax rules, homeowners will be able to claim up to 1,000 yuan a month against their mortgage payments on a first property.

Parents will be able to claim a 12,000 yuan tax deduction against the yearly cost of each of their children’s education expenses, while all adults will be allowed to offset between 3,600 and 4,800 yuan of the annual cost of their own further education.

People with “serious” illnesses will receive a 60,000 yuan a year tax allowance, while those who care for elderly parents will be entitled to tax relief on up to 2,000 yuan a month. The latter is a ceiling per parent, regardless of the number of carers involved.

While the new allowances are primarily aimed at Chinese nationals, the tax authority said they will also be available to selected foreign residents, but only as an alternative to their existing fiscal arrangements.

The proposals include tax relief on the cost of health care and education.

Once approved, the new allowances will be added to the national tax law. They come after the government announced in August that the monthly personal tax allowance would be increased to 5,000 yuan from 3,500 yuan, and new tax bands would be introduced for low-income earners, effective October 1.

Beijing has promised to adopt a more proactive fiscal policy as growth slows in the world’s second-largest economy and companies are struggling with tight liquidity and weak demand.

At its annual parliamentary meeting in March, the government promised to cut taxes for individuals and companies by more than 800 billion yuan as part of a comprehensive plan to reshape the nation’s economic structure.

On Friday, the National Bureau of Statistics reported that annual growth slowed to 6.5% in the third quarter, from 6.7% in the previous three months. The rate of expansion was the slowest since the global financial crisis a decade ago.

The country’s policymakers, including central bank governor Yi Gang and President Xi Jinping’s top economic aide Liu He, responded to the news with a series of individual pledges to ease the financial burden on Chinese businesses.

Tang Beibei, a legal consultant at an American firm in Beijing, said that while the public was likely to welcome the new tax incentives, it remained to be seen how effective they would be in stimulating consumer spending.

“The measures on education, health care and elderly care are all relevant to people’s lives, but I don’t think they go far enough, with rents rising sharply in Beijing and mortgage rates also going up,” she said.

“And given all the usual red tape, it might not be so easy for people to claim the allowances they are entitled to.”

This post first appeared at Copyright 2018. Read the original article here. Follow SCMP on Twitter or Facebook.

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