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China Extends Policy Allocating Localities More Tax Revenue Amid Economic Slowdown

By Cheng Siwei and Guo Yingzhe / Oct 10, 2019 03:03 PM / Finance

China’s central government is trying to ease local governments’ financial burden by extending a policy allocating them more tax revenue, an official document showed Wednesday.

The country is extending a 2016 initiative that gives local governments around 50% of value-added tax revenue — the nation’s biggest tax revenue source — according to an announcement released Wednesday by the State Council, the country’s cabinet. Prior to the rollout, localities were allocated only around 25% of value-added tax revenue, while the state government had about 75%.

The policy, which has an effective period of up to three years, was part of a reform that the country rolled out nationwide to replace business tax — once the biggest tax revenue source for local governments — with value-added tax, essentially preventing companies from being taxed twice.

It should have expired this year, but has been extended given that local government coffers have been impacted heavily by whopping tax and fee cuts worth around 2 trillion yuan ($281 billion), an annual target China set in March to benefit businesses and individuals amid an ongoing economic slowdown.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com)

Read the full story later today on Caixin Global.

Related: China’s Fiscal Spending Declines as Tax Cuts Bite

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