VAT on Chinese utilities to fall under revised measures designed to stimulate economy

Out-Law News | 16 Jun 2014 | 10:26 am | 2 min. read

Four different value added taxes (VAT) relating to utilities will be combined into a single tax as part of measures designed to support China's slowing economy, Reuters has reported.

The Chinese Government has said that the new tax will be levied at a "lower" rate of 3% and take effect from 1 July, Reuters said.

The government also announced plans to create more express train networks, waterways and highways, the news agency said. The new infrastructure projects are designed to create faster transportation of goods to and from ports, and to improve the transportation of oil and gas.

No further details of the measures have been released as yet.

News of plans to increase spending on infrastructure projects follow an instruction by Chinese leaders to local governments to spend all of their 2014 budgets by the end of June, or risk losing funds. This move helped account for an increase of 25% in fiscal spending in May, the news agency said.

The new measures are the latest in a series of moves by Beijing designed to support China's economy.

Official statistics found that China's gross domestic product (GDP) grew 7.4% in the first quarter of 2014 compared to the same period last year, and slower than the government's target of 7.5% growth for this year. Chinese officials also recently warned that China could miss its trade growth target for a third consecutive year in 2014 due to rising labour costs and weakening global demand. Zhang Ji, director general of the foreign trade department at China's ministry of commerce said that a period of high growth for China has ended as increased costs reduce its competitiveness and as Europe and the US try to boost their manufacturing and export sectors, according to Reuters.

Officials are concerned about a number of factors in the Chinese economy, said Reuters, including China’s debt load, relatively weak global demand, and overcapacity in some sectors, including the steel industry. Beijing is also concerned about a slow down in the Chinese real estate market, with average prices for new homes falling in May from the previous month, representing the first contraction in nearly two years, according to the China Real Estate Index System, said Reuters.

Recent stimulus measures introduced by the government include ordering commercial banks to offer more mortgage loans to home buyers and extending tax breaks to all companies who employ people who have been unemployed for more than one year, Xinhua reported. The People's Bank of China (PBoC) recently announced that it is to cut the proportion of cash which some banks must lodge with it by 0.5 percentage points, according to the state press agency Xinhua, which said the cut is expected to affect two thirds of city banks.

Following a number of stimulus measures, China's official purchasing managers’ index rose to 50.8 in May representing the highest reading this year and a rise from 50.4 in April, according to the Financial Times.

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