China: VAT cut is subject to budget constraints – Standard Chartered

Analysts at Standard Chartered suggest that the much-anticipated VAT cut in China is likely to be announced before the annual National People’s Congress (NPC) meetings in March to boost business confidence.

Key Quotes

“A further VAT cut is mainly intended to lower the tax burden on the manufacturing sector, according to the government.”

“We think the next VAT cut will be capped at CNY 1tn due to budget constraints. The official budget deficit is likely to be increased to up to 3% of GDP from 2.6% in 2018, signalling expansionary but still-prudent fiscal policy. Our calculation, assuming restrained recurrent spending, suggests that room for total tax cuts is roughly CNY 1.5tn, with announced cuts in the individual income tax (IIT) and SME taxes accounting for over CNY 500bn already.”