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China plans bigger tax cuts in 2022 to prop up slowing growth

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China will unveil bigger tax and fee cuts this year and step up payments to local governments to offset their hit to revenues, Finance Minister Liu Kun said on Tuesday, amid efforts to support a slowing economy.

Tax fee cuts will be larger in 2022 than last year’s 1.1 trillion yuan ($173.56 billion) in reductions, Liu told a news conference without specifying the size of the planned cuts.

“This year, the central government will significantly increase the size of transfer payments, especially general transfer payments, continue to favour regions with difficulties and underdeveloped areas,” Liu said.

Planned transfer payments to local governments will help largely offset the impact from tax and feed cuts on local governments’ revenues, he said, adding that such transfer payments topped 8 trillion yuan in 2021.

China’s strong economic recovery from its sharp pandemic-induced slump started losing momentum in the middle of last year, weighed by debt problems in the property market and strict anti-virus measures that hit consumer confidence and spending.

Liu acknowledged the difficulty of increasing spending to spur the economy amid declining growth in fiscal revenues.

“We want to properly resolve these issues and hopefully that could be achieved this year,” Liu added.

He said the transfer payments from the central to local governments will continue to favour areas facing difficulties and less developed regions.

Local governments have issued 484.4 billion yuan in special bonds under the 2022 advance quota of 1.46 trillion yuan, vice finance minister Xu Hongcai told the same news conference.

“At present, China’s economy is facing new downward pressure, which requires the strength of fiscal policy to be appropriately front loaded,” Xu said.

At a planning meeting in December, top leaders called for infrastructure investment to be frontloaded to help cushion the slowdown, which looks set to worsen in the first half of this year.

The size of the tax and fee cuts and special bond issuance for 2022 will be unveiled at the annual meeting of the National People’s Congress, or the parliament, which commences on March 5.

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