(Economics Watch) China increases tax incentives to spur innovation
China News Service Beijing, March 24 (by Liu Yuying) An executive meeting of the State Council, China’s cabinet, held on Thursday decided to implement additional tax deductions for manufacturing enterprises’ research and development expenses. This institutional arrangement is one of the strongest structural tax cuts this year.
During the 14th Five-Year Plan period, China will further implement the strategy of becoming a manufacturing power. We will upgrade the industrial base and modernize industrial chains, keep the proportion of manufacturing basically stable, enhance its competitive edge, and promote high-quality development of the manufacturing sector.
According to the Manufacturing Innovation Index Report (2020) recently released by the China Institute of Electronic Information Industry Development, from 2011 to 2018, the intensity of China’s manufacturing R&D investment increased from 0.71% to 1.23%. The intensity of human investment in manufacturing R&D increased from 2.12 percent to 3.57 percent.
However, it is worth noting that from 2011 to 2018, the proportion of R&D investment in the manufacturing sector in the total R&D investment of the whole society did not increase, but decreased. Liu Wenqiang, deputy head of the China Institute of Electronic Information Industry Development, said this showed that the growth rate of R&D investment in manufacturing was slower than that of society as a whole.
Zhang Lianqi, vice president of the China Society of Taxation, previously suggested that enterprises should be encouraged to increase their R&D intensity and expand the scope and proportion of additional deductions for R&D expenses of manufacturing enterprises from 75% to 100% or even 125%.
According to a new policy released by the State Council, starting from January 1 this year, manufacturing enterprises will be able to deduct an additional 250,000 yuan from their taxable income for every 1 million yuan (the same below) they spend on research and development.
For example, for a manufacturing enterprise, the amount of eligible R&D expenditure in 2021 is 1 million yuan. If the research and development expenses are deducted by 75%, the research and development expenses can be deducted by 1.75 million yuan when calculating the taxable income amount. If 100% of the R&D expenses can be deducted, the amount of the R&D expenses that can be deducted is $2 million.
Han Jianfei, director of the Regional Economic Research Office of the Institute of Industrial Economics of CCID think tank, said that enterprises are the main body of innovation, and from the perspective of the 14th Five-Year Plan period and the medium and long term development, supporting enterprises, especially manufacturing enterprises’ innovation will be the main focus of the policy.
Claim additional deduction “China before the implementation of the development costs, all companies is 75%, and the preferential policies before continuing claim additional deduction will be the basis of the manufacturing enterprise r&d ratio to 100%, is beneficial to use the preferential tax incentives manufacturing enterprises increase investment in research and development, enhance the innovation power of enterprise, but also to strengthen the innovation main body status of manufacturing enterprises, to promote all kinds of innovative elements gathered to manufacturing enterprises”, Han Jianfei said, at the same time for business tax cuts.
With this policy, an additional 80 billion yuan of tax cuts will be made for enterprises this year, on top of the more than 360 billion yuan in tax cuts last year, the NPC said. “This institutional arrangement is the most aggressive structural tax cut this year,” it said.
The meeting also made it clear that financial support for small and micro businesses will not be reduced to ensure that financing for small and micro businesses will be more convenient and comprehensive financing costs will be stable while falling.
China now has more than 40 million enterprises, of which over 95 percent are small and medium-sized enterprises, which are the main source of employment. Last year since the implementation of support small micro enterprise two direct monetary policy tools, namely to the local legal person bank for pratt & Whitney small micro enterprise loan extended servicing for motivation, for its small micro credit loan offer financial support, to help small businesses cross the difficulties, employment and people’s livelihood, steady economic base has played an important role.
The meeting decided that on the basis of extending the implementation of the two direct monetary policy tools to the first quarter of this year, the implementation period will be further extended to the end of this year.
Han Jianfei said that at present, the global epidemic and the world economy still face great uncertainties, and small and medium-sized enterprises are facing many difficulties, such as lack of effective market demand, rising costs of raw materials and labor. Extending the above policy will help small and micro businesses to better play their important role in ensuring stable employment. (after)