Premier Li Keqiang has indicated there will be large-scale tax cuts to boost struggling enterprises under a taxation reform programme to be expanded nationwide this year. The government would replace business tax with value-added tax (VAT) across the country this year, Li said on Friday. His remarks followed pledges by Chinese leaders to cut taxes and expand the government budget deficit this year to support growth amid an economic slowdown. China’s economic growth slowed to 6.9 per cent last year, the lowest since 1990. A trial programme replacing business tax with VAT was introduced in Shanghai in 2012 as part of an effort to reform China’s state-centric fiscal system. READ MORE: China’s VAT reform to impact developers in cooling market Since 2013, the programme has been expanded to several other municipalities and provinces. It has been applied to various sectors including railways, postal services, telecommunications and some areas of the service sector. “We will fully expand the tax reforms to help substantially reduce corporate tax burdens,” state news agency Xinhua quoted Li as saying. Large-scale tax cuts would boost growth by reducing companies’ costs and help to modernise the country’s economic structure, the premier said. The government hopes this will invigorate small- and medium-sized enterprises, most of which are privately owned. The SME sector is a key part of China’s economy, contributing 60 per cent of the country’s gross domestic product (GDP), 50 per cent of fiscal and tax revenue, and 75 per cent of urban employment. Li said the tax measures were part of the government’s plan for “supply-side” reform. The government hopes such reform can take the place of state-led stimulus in boosting economic growth. READ MORE: China’s plan to extend VAT to property leaves players bracing for impact He admitted the move would significantly reduce the government’s fiscal income, but added, “the short-term reduction in fiscal income will be compensated for by sustainable growth in the longer term”. He also promised to adjust the share of fiscal income and expenditure between the central and local governments as an incentive for officials to push tax reforms. Since coming to office, Li has focused on reducing SMEs’ tax burden and other costs to promote investment. Since last year, the State Council, headed by Li, has announced a series of preferential tax policies for SMEs. Li wants an economy focused on entrepreneurship and innovation, which he believes can tackle the structural problems China faces with slowing growth in an economy long dominated by state-owned enterprises. Meanwhile, to encourage private sector support of entrepreneurs, Shanghai’s municipal government said it would partially compensate angel investors who lost money in funding start-ups.