BEIJING (Reuters) - China will accelerate tax cuts and reforms for selected industries this year to boost domestic consumption, Finance Minister Xie Xuren said in remarks published on Thursday.
The pledge is the latest made by China’s policymakers to cushion a slowdown in growth set to extend for a sixth straight quarter and leave the world’s second biggest economy on course for its weakest full year of expansion since 1999.
“In 2012 we will push forward tax reforms and try to make significant progress in some key sectors,” Xie said, according to a statement published on the ministry’s website, summarizing a speech made in late April.
“We will further improve the policy of cutting taxes for some sectors to spur domestic demand,” he added.
So far, Beijing has taken several steps overhaul its tax regime, such as launching a pilot program to replace business tax with value-added tax, cutting import duties on some consumer goods and providing tax breaks for smaller firms.
Local media have reported that China may unveil a plan to expand its value-added tax beyond Shanghai as soon as in early June, with 10 cities and provinces on a waiting list.
Xie also pledged to make fiscal policy play a bigger role in adjusting China’s economic structure, citing energy price reform and setting up a nationwide social security network.
He also called for the establishment of a risk-alert and prevention system to enhance supervision of local government debt, without further elaboration.
Chinese local governments had racked up 10.7 trillion yuan in debt by the end of 2010, mainly the legacy of an investment binge triggered by Beijing’s 4 trillion yuan stimulus plan to counter global financial crisis. About 45 percent of the debt will come due in the coming three years.
China has increased efforts to support the economy in the face of a deepening European debt crisis and slowing demand at home, fast-tracking infrastructure investment, providing consumption subsidies in some household sectors and pushing ahead with financial reforms to help safeguard growth.
It has eased banks’ required reserves in three steps since the autumn of 2011, cutting 150 basis points in total to 20 percent and freeing up an estimated 1.2 trillion yuan for fresh lending. It has also cut taxes and slashed red tape.
Economists polled by Reuters in May said they expected a further 100 bps to be cut through the rest of this year to bring the rate down to 19 percent.
Few analysts expect a massive injection of stimulus on anything like the scale of the 4 trillion yuan program unveiled in 2009 and many experts argue against it, even though China’s growth in 2012 is likely to be its slowest in 13 years - albeit at a rate of 8.2 percent.
Reporting by Aileen Wang and Koh Gui Qing; Editing by Nick Edwards