China has vowed to cut the value-added tax rate on various sectors as of May 2018. The sectors affected include manufacturing, transportation, construction, telecommunication and agricultural sectors.
The motivation behind this decision is to lighten the tax burden on individuals and businesses. The government is also looking to boost domestic demand in a year of economic growth that slowed down in 2017.
According to Reuters, China’s State Council said VAT cutd are expected to save 240 billion yuan ($38 billion) in taxes this year.
Earlier this month, Premier Li Keqiang highlighted the tax cuts for the manufacturing and transportation. The tax rate cut for the manufacturing sector will lower to 16% from 17%, while the rate for other industries will be cut to 10% from 11%.
The findings from Goldman Sachs research indicated that the tax cut is a positive move. “However, the magnitude of the cut is relatively small and is already factored into the official fiscal budget.”
The research also stated that the coming weeks will reveal details of other tax cut measures.