Aug 2023: Ministry of Finance provides SMB VAT relief for further 5 years as growth slows
The Chinese Ministry of Finance and State Administration of Taxation have extended the exemption for small businesses from the 3% VAT rate. Also, the alternative cash-flow based VAT accounting rate will remain at 1% instead of 3%.
Both reliefs were due to expire on 31 December 2023. They will now run to 31 December 2027.
The relief was originally introduced in March 2022 until the then of the year. At the start of 2023, it was until the end of 2023.
Chinese growth has been missing expectations: it grew just 0.8% in the June quarter, down from 2.2% in the first three months of 2023. This was due to export demand remaining tepid and sinking property prices sapped consumer confidence.
March 2022 Temporary exemption from VAT for small businesses as economy struggles to hit growth targets
On 24 March 2022, China’s Finance Ministry announced the withdrawal of the 3% VAT rate applied on small businesses. This includes enterprises with annual sales not exceeding CNY 5 million per annum.
This will apply from 1 April until 31 December 2022.
Earlier this week, China VAT credit refunds were announced as being speeded up with a CNY 1.5 trillion (approx $236 billion; €215 billion).
China growth hits 30-year low
This tax support is being rolled out following worries around COVID-19 outbreaks and the slowing economy. Earlier this month, China set it’s 2022 growth target at 5.5%, the lowest since 1991. The effects of the ongoing COVID-19 shutdowns and property price collapse have been the main causes.
China’s tax as a share of GDP at 21% remains one of the lowest in major countries. The OECD average is 34%. China had already cut the main standard VAT rate from 17% to 13% in 2017.
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