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By John Butcher
China is set to expand corporate tax cuts and extend a duty-free policy for technology imports in an effort to encourage foreign technology investment and imports.
The corporate tax on qualifying high-tech companies will be reduced to 15 percent retroactively from Jan. 1, 2017, from a standard rate of 25 percent, while an exemption from tariffs and value-added taxes for purchases of technological equipment, started eight years ago, will be continued, according to statements by China’s Ministry of Finance this month.
The policies, announced Nov. 2 and Nov. 15, are intended to encourage the long-term development of China’s high-tech industries, according to China’s state-run news.
Wang Xin, vice president of the Center for China and Globalization, a think tank connected to the Chinese government, told Bloomberg Tax Nov. 15 that the government’s long-term aim was “upgrading China’s economy and transforming its economic structure.”
“China is still, in general, a developing country, and lags behind the general levels of western countries in high-tech and new technologies,” he said, adding that it will take “two or more decades to catch up.”
One of the tax notices, issued by the Ministry of Finance, said the intent was to “give full play to the positive role of foreign investment in optimizing the structure of trade in services and encourage more foreign investment in high-tech and high- value-added service industries.”
A range of high-tech services businesses are eligible for the tax breaks, including information technology outsourcing and business process outsourcing firms. To qualify they must receive half of their revenue from high-tech services business, among other requirements.
The exemption from tariffs and VAT is expected to save Chinese importers about 2.3 billion renminbi ($347 million), according to a report by China’s state-run Xinhua news agency on Nov.15.
“The move came as part of the country’s effort to develop into a manufacturing powerhouse with more and better high-tech products as the advantage of cheap labor in Chinese factories fades away,” according to Xinhua.
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