Government Work Report 2022 confirms thrust on steadying growth via tax, fee cuts

China's relentless efforts in supporting and facilitating smaller business communities will help keep economic growth on a steady course and accelerate the country's development, experts and market insiders said.

China has set its GDP growth target at around 5.5 percent for this year as the country's national lawmakers and political advisers gathered in Beijing last week to map out development priorities. Delivering the Government Work Report on March 5, Premier Li Keqiang said achieving the GDP goal will require arduous efforts.

Measures to achieve such a goal were also announced, including a greater package of tax and fee cuts to support market players, especially small ones.

During this year's two sessions, the annual sittings of China's national legislature and the top political advisory body that ended on March 11, many political advisers from the field of economics shared their views on the Government Work Report and hailed the government's new efforts to support smaller businesses.

Wang Yiming, a political adviser and also a member of the 13th National Committee of the Chinese People's Political Consultative Conference, said the tax and fee moves can be extremely important this year.

"This will help keep liquidity in the hands of smaller businesses and help them to tide over tough times," he said.

He also said small and medium-sized enterprises and self-employed individuals remain key to the nation's efforts to create jobs and achieve economic prosperity. That is why they are the primary beneficiaries of the new tax cuts and refunds this year.

Economists said they believe that over the past year, smaller businesses, affected by the changing market dynamics and rising commodity prices, particularly in the downstream, experienced considerable pressure.

Shi Yinghua, a professor at the Chinese Academy of Fiscal Sciences, said in an interview prior to the two sessions that smaller businesses are important forces underpinning Chinese growth, as they are large in number, cover wide-ranging sectors, and create immense job opportunities. Over the past year, tax and fee cuts extended to them have played a significant role.

"Over the past year, policies that alleviate burdens on micro, small and medium businesses, particularly in manufacturing, have worked effectively in tackling temporary difficulties. Government work reports at provincial and municipality levels have shown that in 2021, the tax cuts reached a certain (decent) level," Shi said.

Finance Ministry data showed that tax and fee reductions introduced last year totaled about 1.1 trillion yuan ($174 billion). In addition, tax payments were postponed for micro, small and medium enterprises－MSMEs－in manufacturing as well as coal-fired power plants and heating-supply enterprises as a temporary measure.

These moves have proved a direct and effective way of helping enterprises ease their difficulties and have also proved to have helped nurture business growth and cultivate sources of tax revenue. Last year, revenue generated from taxpaying market entities registered since 2013 reached 4.76 trillion yuan.

Shi noted that going forward, such moves will remain crucial, as continued efforts in bringing down tax payments of smaller businesses will greatly help anchor market expectations.

The 2022 Government Work Report confirmed that the government will issue value-added tax credit refunds on a big scale this year. Amid such moves, priority will be given to micro and small enterprises, refunding outstanding VAT credits to them in one lump sum by the end of June while also fully refunding newly added credits.

In addition, the total amount of tax cuts and refunds will reach 2.5 trillion yuan, more than twice the 1.1 trillion yuan achieved in 2021.

The Central Economic Work Conference in December noted that the Chinese economy is facing threefold pressure of contracting demand, supply slump and weakening market expectations. To aid market players, particularly those in industrial and services sectors, a raft of policies has already been rolled out to help businesses in these two sectors.

On Feb 15, an executive meeting of the State Council, China's Cabinet, stressed the important role that the industrial economy and the services sector play in overall economic development and employment stability. Noting that the industrial economy has not fully recovered since the pandemic and is in need of policy support, the meeting called for greater support.

On Feb 18, the National Development and Reform Commission, along with several other government departments, released a raft of measures to shore up support for MSMEs in the services sector, outlining 43 policy measures to provide fiscal and logistical support for enterprises in the sector, especially those in the catering, retail and travel segments, that have been particularly hard-hit by the COVID-19 pandemic and related restrictions.

The policy list includes the extension of tax reductions and exemptions, fiscal support measures, and help with implementing COVID-19 prevention measures, among many other relief policies.

Income tax relief will be extended to companies in the industrial and services sectors. This year, MSMEs that purchase new equipment worth more than 5 million yuan with a three-year depreciation period are entitled to a one-off deduction of total purchase costs from taxable income. For those with equipment depreciation periods of four, five or 10 years, they are eligible for a 50 percent deduction.

Tax deferral policies will also be extended for MSMEs in the manufacturing sector. In addition, stronger financing support will be put in place. The People's Bank of China, the country's central bank, will provide funding to support an increase in inclusive loan offerings to micro and small businesses.

Efforts will also be made to facilitate more medium and long-term loan offerings to manufacturers in an effort to bring down overall financing costs. Economists said they believe these efforts, combined with the new moves helping the smaller business communities, should help keep China's growth on a steady track.

Yang Weimin, deputy director of the Economic Affairs Committee of the CPPCC National Committee, said on the sidelines of the two sessions that manufacturing businesses and private, small businesses are, and will continue to be, the sources generating growth this year.

"The most pressing task now is to alleviate the burden for smaller businesses against the current backdrop of global changing dynamics and uncertainties. Most of China's private businesses are small and micro ones. They tend to be much more vulnerable in the face of risks and uncertainties, and their difficulties will translate into weaker market demand, posing challenges to the overall economy," Yang said.

"The previous measures in support of manufacturing and the new tax breaks and refunds will therefore help them to stay on top of these difficult times. These policies, at the same time, will also help anchor market expectations of businesses of all sizes."