China’s tax cuts were meant to boost its slowing economy, but will they end up hurting debt-ridden regions?

Premier Li Keqiang announced reductions in value-added and personal income taxes and a lowering of the social security contribution rate in March

The tax cuts are said to be worth 2 trillion yuan (US$298 billion), but local authorities are already asking for additional funding due to the economic slowdown

Reading Time:5 minutes

Premier Li Keqiang announced the tax cuts in his annual work report at the “two sessions” meeting in March. Photo: Xinhua

Frank Tangin BeijingandSidney Lengin Hong Kong

Published: 6:00pm, 11 Apr 2019Updated: 10:06pm, 11 Apr 2019

In implementing tax cuts to help businesses stay afloat, China has unwittingly made life harder for thousands of debt-ridden municipalities across the country.

The impact on local government budgets may also have the unintended impact of reducing support for new infrastructure projects due to a lack of sufficient funding, analysts warned.

As companies and individuals pay less tax to local government’s under 2 trillion yuan (US$298 billion) worth of tax cuts this year, it is the regions that will have to bear the brunt of squeezed budgets resulting from lower revenue unless Beijing reforms the tax-sharing arrangement between the central government and local authorities, analysts said.

Regional woes are mounting in tandem with calls for additional funding support from the central government as the economy is growing at its slowest pace in nearly three decades. The depth of these concerns reverberated in discussions among local officials during March’s “two sessions” meeting of the country’s top legislative and political consulting bodies, including officials from some of the richest provinces.

“It will be the tightest year for us fiscally. The central government should give more funding support for key local events and strategic projects,” said Wu Sufang, head of the Beijing municipal government’s fiscal bureau.