China’s struggling middle class may find small relief in tax deductions
- Beijing introduces new tax concept in bid to get consumers spending more as part of its response to US-China trade war
- Analysts doubt it will make much difference in the short term
China is introducing a new concept for taxpayers in a bid to encourage consumers to play their part in stabilising growth amid the trade war with the United States.
The Chinese government announced at the weekend that tax deductions would be available for the first time in an attempt to reduce the tax burden and address the rising costs faced by urban middle-class Chinese consumers.
The new scheme will allow taxpayers to reduce the proportion of their income subject to tax by subtracting certain expenses, and it targets the most discussed – and worried about – items among China’s middle class: housing, education, health care and aged care.
Analysts have said for some time that China’s weak social safety net for health and elderly care, combined with soaring costs for housing and education, has given consumers strong incentives to save to pay for these expenses.
In theory, allowing these costs to be deducted from taxable income should encourage consumers to save less, increasing the money they have to spend and contributing more to the key plank of the government’s plan to stabilise growth as the economy weathers the impacts of the trade war.
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But analysts are unsure if the new tax scheme will do much to get consumers to spend more, particularly in the short term.