BEIJING (Reuters) - China’s efforts to cut taxes and fees on companies will hurt government revenues, but increased economic activity generated by a lighter cost burden will help keep overall state finances stable, a finance ministry official said in Beijing on Friday.
Beijing has pledged to cut company costs by more than 1 trillion yuan (115.64 billion pounds) a year in an effort to lower the burden on firms struggling with higher costs and tepid demand as the economy shifts to a slower growth trajectory.
China’s State Council announced new measures on Wednesday to further cut cost burdens on companies, including temporary exemption from supervision fees in the banking and insurance sectors, and lowering some fees in the power and construction sectors.
China said that a switch to a value added tax system last year saved companies 574 billion yuan in taxes, though the cost-cutting campaign comes as the Ministry of Finance says the imbalance between revenue and expenditure “remains serious”.
“Cuts in taxes and fees will definitely have an impact on fiscal revenues,” vice finance minister Shi Yaobin said at a news conference Friday.
Shi said that the government’s forecast for the fiscal budget deficit to expand by 200 billion yuan this year is due in large part to less revenue expected from taxes and fees, though the fiscal deficit ratio is expected to remain unchanged at 3 percent.
Shi said China’s system of government transfer payments ensures against any shortfall in local government revenues.
“For the small number of local governments that face fiscal difficulties, we will use transfer payments to make sure these governments are able to match revenues and expenditures and safeguard public services and social development,” said Shi.
“I don’t think (local government finances) are a problem...but we do need to keep an eye on it.”
Reporting by Elias Glenn; Editing by Shri Navaratnam