Tax and fee cuts bolster companies' R&D, innovations

China's tax and fee cuts last year were worth more than 2.2 trillion yuan ($305 billion).

Tax deductions extended to companies' research and development expenses rose significantly, said the State Taxation Administration on Thursday.

These measures are believed to have greatly boosted companies' confidence to spend more on technological innovations. This, in turn, will inject greater vitality into corporate development as well as economic growth, said industry experts.

The top tax authority said at a State Council news conference that companies saved 1.85 trillion yuan in the form of tax deductions for R&D expenses in the first three quarters, up nearly 14 percent year-on-year.

Corporate taxpayers from the manufacturing sector benefited the most, receiving 60 percent of such R&D tax deductions totaling over 1.1 trillion yuan.

The R&D tax deduction was introduced as a preferential tax policy, allowing companies to save more by way of a certain percentage of their R&D expenditure. In March last year, China lifted the percentage to 100 percent from 75 percent and made the policy a permanent one. For eligible companies from the integrated circuit and machine tool sectors, the percentage is even higher at 120 percent.

Huang Yun, spokesman of the STA, disclosed that though the full-year figure for R&D tax deductions is still being worked out, the figure for 2023 will "only be bigger".

"More favorable tax policies will be implemented to facilitate convenience of companies and better support their innovative development, as well as the country's self-reliance on high-level science and technology," Huang said.

Li Xuhong, head of fiscal taxation policy and application at the Beijing National Accounting Institute, said: "Such efforts will help (corporate) taxpayers save fully on operating costs through R&D expense deductions. Relief will further stimulate their vitality and drive innovation capability, all of which will be strong drivers of the country's economic development."

Jiao Jian, taxation affairs head of display panel maker BOE Technology Group Co Ltd's branch in Hefei, Anhui province, said in an interview with China Daily that the company has been able to sustain the momentum it had gained in key display technologies, mainly because tax reliefs stabilized its finances.

Jiao also said that as of the end of October, BOE Technology had enjoyed a super deduction of nearly 1.6 billion yuan in R&D expenses, which greatly reduced the company's costs, helping it to pursue more innovations.

On Thursday, the tax authority also noted that the country's full-year tax revenue, which excludes the export tax rebate, reached 31.7 trillion yuan last year. Revenue from social security fees was 8.2 trillion yuan.

Notably, tax deferrals for foreign-funded enterprises saw a stable 0.8 percent year-on-year increase in 2023 to 141.2 billion yuan. Tax deferral is a preferential policy extended to foreign companies to delay tax payments to some future date, which helps them invest the money that might otherwise go toward taxes, in areas with greater long-term growth potential.

To facilitate international taxation services, the STA has been working to promote global taxation services using TaxExpress, a long-term mechanism to help better understand taxation policies and related information for foreign companies investing in China and Chinese companies investing abroad.

On Wednesday, the STA held a symposium with some foreign chambers of commerce in China, including those from the United States, the European Union, South Korea and Japan, to address tax-related appeals of foreign-funded enterprises and help solve related problems.

On Tuesday, the tax authority released an updated tax policy guideline on stabilizing foreign investment and foreign trade. The guideline includes 51 detailed entries.

Li Ping, deputy director of the STA's tax science research institute, said that foreign trade and foreign investment are indispensable for stabilizing the country's economic and social development.

"Such efforts sent a positive signal about the country's determination to open up more to the outside world and vigorously consolidate the fundamentals of foreign trade and foreign investment, which will further boost market confidence," Li said.