Beijing considers VAT reform to boost struggling industries

Companies in China may be allowed to use fixed-asset investments to offset value-added tax payments owed to the government under a new system being considered in Beijing, the South China Morning Post reported. The changes to the VAT system could save China’s eight million companies up to US$22 billion per year and encourage more investment in industries struggling as a result of slower economic growth. Manufacturers that make large investments in fixed assets, such as factories and machinery, could expect to reap huge benefits. Beijing introduced a similar plan in the country’s northeast in 2004, and the Ministry of Finance and the State Administration of Taxation have recommended that the State Council expand the program nationwide. It has been suggested that the government might also cut personal income tax to boost consumption and reduce banks’ reserve requirement ratios in order to facilitate lending.