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Tax cuts: supporting small enterprises and technological innovation

By RUI HUICHONGQING|Apr 25,2021

Chongqing – Small and micro-enterprises have been the key support targets of tax and fee reduction policies for many years, and play a pivotal role in expanding employment, improving people’s livelihood, cultivating the market, and maintaining stability. So there are newly introduced preferential policies going to offer more support to small and micro-enterprises and innovation companies.

Preferential policies for small and micro-enterprises

Yao Chaozhi, the spokesman of the tax cuts news conference on April 22, said: “China has introduced new policies to further improve the system of tax policies for small and micro enterprises, mainly involving the Eight Taxes and Two Fees”.

He introduced that after three adjustments, the VAT exemption standard for small-scale VAT taxpayers has increased from the monthly sales of 20,000 yuan as prescribed by the tax law to 150,000 yuan per month, and the benefits continue to expand.

Besides, the policy of reducing the VAT collection rate for small-scale taxpayers from 3% to 1% will continue till the end of 2021. This means that small-scale taxpayers whose monthly sales are less than  150,000 yuan can be exempted from VAT, and even if it’s over 150,000 yuan, one can still enjoy a rate discount of 1%.

Besides, by the end of 2022, the portion of the annual taxable income of small and low-profit enterprises under 1 million yuan will be included in the taxable income at a reduction of 12.5%, and the corporate income tax will be calculated and paid at a tax rate of 20%. The actual tax bearing is 2.5 %. Also, the “six taxes and two fees” levying by half policy for small-scale value-added taxpayers will be implemented until the end of 2021, and multiple policies will be carried out, which will help middle and small-sized enterprises to develop and promote employees to a greater extent.

“In addition to supporting small and micro enterprises, increasing support for technological innovation is another key task of this year’s tax reduction and fee reduction.” Yao Chaozhi said that this year China will continue to implement the preferential policies of deducting 75% of research and development expenses until the end of 2023, and from January 1 this year, the R&D fee deduction ratio of manufacturing enterprises will be increased to 100%.

“I believe that with the implementation of the new tax deduction policies for R&D expenses, it will further encourage enterprises to increase R&D investment and promote China’s manufacturing innovation to lead the high-quality development of the national economy”, said Yao.

Increase tax benefits to empower the construction of Chongqing’s western financial center

As an important strategic fulcrum for the development of China’s western region, Chongqing is currently building a financial center in the western region. In this regard, tax cuts and fee reductions will continue to make efforts to play a more important role in promoting the high-quality economic development of Chongqing and the coordinated development of the eastern and western regions.

Statistics show that since the country began to implement the western development strategy in 2001, in the past 20 years, Chongqing has accumulatively enjoyed 58,000 enterprises (times) of preferential taxation policies for the western development, and corporate income tax reductions and exemptions totaled 132.535 billion yuan.

According to Yao Chaozhi, in 2020, China will extend the preferential policy of 15% corporate income tax on encouraged industrial enterprises in the western region until the end of 2030. In the 2020 edition of the “Catalogue of Encouraged Industries in the Western Region”, Chongqing has added 19 new encouraged industries. At the same time, starting from January 1 this year, the proportion of the main business income of the encouraged industry projects in the total income of the enterprise for the year will be reduced from 70% to 60%, which further reduces the threshold of preferential tax policies and will benefit more market entities.

The economy will surely bloom and become more powerful with blooming and powerful finance. To better promote the construction of a financial center in western Chongqing, the healthy development of the financial industry is very important. Statistics show that in 2020, Chongqing’s financial industry has achieved an added value of 221.28 billion yuan, accounting for 8.9% of the region’s GDP; Inbound taxation accounts for 12.5% of Chongqing’s total tax revenue and is a key industry in Chongqing.

“This year, China has continued the relevant preferential tax policies that support the development of the financial industry, which will provide strong support for the transformation and development of the financial industry, and at the same time empower the economy of reverse financial feeding”, said Yao, “Including the interest income obtained by financial institutions from issuing small loans to farmers, small and micro enterprises and individual industrial and commercial households, exemption from VAT policies, and for eligible county branches of the Postal Savings Bank, they can choose to apply the simplified tax calculation method to calculate and pay VAT at a 3% levied rate and continue to support the healthy development of the financial industry.

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