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China Offers Businesses Tax Relief to Soften Coronavirus Impact

Feb. 7, 2020, 7:08 PM

China is offering a comprehensive package of tax and fiscal measures to help domestic businesses hurt by the coronavirus outbreak.

The transportation sector will be a key beneficiary from measures like temporary value-added tax breaks and loss carry-over extensions. Agriculture and retail companies will also benefit in some provinces.

“China’s economy will continue to show strong resilience,” Pan Gongsheng, deputy governor of the People’s Bank of China said Friday at a briefing in Beijing. “The Chinese government has ample policy space to stabilize economic growth.”

The coronavirus has infected thousands of people and killed more than 600 hundred. The majority of cases are in China. The outbreak has hurt various businesses, prompting the government to offer tax relief to soften the impact.

Supply chains, manufacturing operations, and many service industries face disruption in the coming weeks due to transport and staffing difficulties exacerbated by quarantines and travel restrictions in many areas of the country. Many workers have been away for the Lunar New Year break, which was extended to Feb. 9 in response to the crisis.

Yu Weiping, vice minister of the Ministry of Finance, said that any imported materials for epidemic prevention would be exempt from import duties, VAT and consumption tax.

Yu said that companies purchasing materials that can help them continue production during the outbreak would be allowed to deduct these from corporate income taxes and that VAT related to transport of materials specifically for epidemic prevention can be exempted during the outbreak.

Public transportation, express delivery, and businesses associated with daily necessities will be exempted from VAT, Yu said. Epidemic-hit companies in the catering, tourism, accommodation, and transportation sectors will be able to carry over losses for an additional three years, to a total of eight years, he added.

Donations by businesses and individuals of material and medical supplies to help with the epidemic will also be eligible for tax deductions. The government will also waive personal income tax on salaries and bonuses for medical workers involved in epidemic prevention.

The State Administration of Taxation detailed some of these policies in an earlier statement. That statement also noted that airlines will be exempt from civil aviation fees during the period, which is expected to last until the end of April.

Provincial and Local Initiatives

Major provinces and municipalities in China have also begun to roll out local policies to help small and medium sized companies during the virus outbreak.

Guangdong province in South China, the country’s most populous province and most important manufacturing region, also released 10 measures on Feb. 2.

These include tax reductions on medical supplies and other materials needed to control the outbreak, reduced taxes and tax reporting provisions for medical institutions, and exemptions of income taxes for medical personnel.

The Guangdong policy calls on local governments in the province to implement preferential tax rates for high-tech companies, tax deductions on research and development expenses and for priority to be given for tax refunds on any equipment related to drug, vaccine, and reagent production.

Companies that supply and store meat, vegetables, and eggs and daily necessities can also take advantage of reduced VAT, real estate taxes, and urban land use taxes.

Guangdong will also implement tax reduction policies for catering, hotels, and other companies that cannot resume production as usual, and support further tax reductions for small companies, according to the statement.

Beijing municipality announced several policies, including tax cuts, on Feb. 6. These include deferred tax payment for companies that have difficulties operating, with a maximum deferment of three months. Taxi and ride hailing companies will also be provided with tax incentives to ensure continued operation.

Subsidies for research and development for smaller and medium sized companies will also be made available through a special fund.

Suzhou, a manufacturing and tech-hub city in Jiangsu province near Shanghai, released a set of 10 policies Feb. 2 to support companies that find themselves in difficulty. Tax measures include real estate and urban land tax relief, and the opportunity to defer tax payments for small and medium enterprises in financial difficulty.

Shanghai announced policies Feb. 3, mainly aimed at small and medium-sized companies.

Other areas will likely begin to roll out combinations of polices similar to those described above in the coming days and weeks, depending on their local situations.

To contact the reporter on this story: Michael Standaert in Shenzhen, China, at correspondents@bloomberglaw.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; Joe Stanley-Smith at jstanleysmith@bloombergtax.com

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