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Frank Tang

He Huifeng

China should use tax breaks to support small businesses, tackle income inequality and unleash household consumption, a former senior official said on Saturday.
Former Chongqing mayor Huang Qifan told the International Finance Forum in Guangzhou that temporary tax breaks for small and medium-sized enterprises (SMEs) should become permanent and the top personal tax cut from 45 per cent to 25 per cent.
“A key element of China’s modernisation programme is for most Chinese to reach the middle-income bracket,” he said.
Huang said that to get there, China needed “to lower the proportion of indirect tax revenue and increase the share of direct taxes”.


The country’s plan is to double the size of its middle class – now an estimated 400 million people – and halve the number of low-income earners by 2035.
But income inequality has proved a persistent problem.
The income gap between urban and rural residents has widened in the past two years, according to the National Bureau of Statistics.
The bureau said the per capita disposable revenue of urban residents was 2.44 times that of rural residents in 2019, compared to 2.56 in 2020 and 2.6 in the first half of this year.
However, the bureau also said that China’s Gini coefficient – a measure of inequality – fell to 0.468 last year from 0.47 in 2019 and a high of 0.491 in 2008.
The coefficient ranges from 0 to 1, with 0 being perfect equality. The World Bank regards 0.4 as a red line.
“If the gap between the rich and the poor is too large, the economy will be characterised by underconsumption and overinvestment,” Huang said.
Common prosperity and dual circulation? China’s economic buzzwords unpacked
To help reach the 2035 targets, China has launched a “common prosperity” strategy to give more people a chance to share in the nation’s wealth. It has also promoted a “dual circulation” self-reliance programme to encourage consumption but this effort has been challenged by weak demand.
In 2018, in competition with a US-led tax cut, Beijing also announced a series of temporary tax relief packages, including halving the taxable base and lowering the corporate income tax rate to 20 per cent from 25 per cent.
But calls have grown for more tax breaks, particularly for SMEs, which employ 70-80 per cent of the urban workforce and have been hit hard by the coronavirus pandemic and the country’s zero-Covid strategy.
Huang said the temporary tax measures, many of which could expire at the end of the year, should be upgraded to a long-term arrangement, rather than awaiting annual renewal.
“It will help form long-term and stable social expectations,” he said.


Huang also called for a big cut in the personal income tax rate to fight tax erosion and expand household revenue. The top tier of China’s progressive personal income tax system is 45 per cent, compared to the 25 per cent statutory corporate tax rate.
China is overhauling its tax system and intends to increase direct taxes, with standard property, inheritance and capital gains tax under discussion.
The Chinese authorities are also set to increase household disposable income.
Huang said the country’s disposable income as a share of gross domestic product dropped to 40 per cent in 2012 from 58 per cent in 1980, and had stayed at a “relatively low” level of 42 per cent.
However, it could rise to half by 2030 and 52 per cent by 2035 if actions were taken to ensure common prosperity, he said.


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Huang Qifan has called for a big cut in the personal income tax rate to fight tax erosion and expand household revenue. Photo: Reuters

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China’s property tax plan is part of President Xi Jinping’s campaign to redistribute wealth and address widening social inequality, but some fear the rich will find a way to avoid paying their fair share. Illustration: Henry Wong

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China’s small and medium-sized enterprises are bearing the brunt of the nation’s economic downturn. Photo: Bloomberg

A retailer who sells blood-pressure monitors in Shenyang, Liaoning province, said about 40 per cent of small-medical-device retailers in the city have permanently closed down in the past two years. Photo: Shutterstock

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Chinese Premier Li Keqiang says new policies are needed to support small businesses. Photo: Bloomberg

Chinese Premier Li Keqiang chairs a symposium at the State Administration for Market Regulation. Photo: Xinhua

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China’s property market has been a driver of wealth over the past two decades. Photo: Bloomberg

China’s property market has been a driver of wealth over the past two decades. Photo: AFP

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Huang Qifan says tax tools could be deployed to narrow the income gap and encourage spending
Temporary cuts to help SMEs should be made permanent, he says



Huang Qifan says tax tools could be deployed to narrow the income gap and encourage spending.


Time for a permanent tax break for China’s Covid-hit small businesses, former mayor says

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;} Huang Qifan says tax tools could be deployed to narrow the income gap and encourage spending Temporary cuts to help SMEs should be made permanent, he says

Huang Qifan says tax tools could be deployed to narrow the income gap and encourage spending

Temporary cuts to help SMEs should be made permanent, he says