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China rolls back taxes by $55 billion to encourage consumer spending and boost growth

China is cutting taxes this year by 380 billion yuan ($55 billion) in efforts to encourage spending and boost growth.

The value-added tax system will be reduced from four brackets to three, and the tax rate for products including natural gas and farm items will be cut to 11 percent from 13 percent. Tax breaks are increasing for small and medium-sized businesses with annual income of 500,000 yuan or less, according to a State Council statement.

The government is also rolling out incentives to boost tech and R&D, and from July 1, citizens purchasing their own health insurance can deduct 2,400 yuan from their taxable income.

Chinese Premier Li Keqiang talking  at The Great Hall of People on March 15, 2017 in Beijing.
Lintao Zhang/Getty Images
Chinese Premier Li Keqiang talking at The Great Hall of People on March 15, 2017 in Beijing.

"Pushing through further tax cuts will effectively promote the economy," Premier Li Keqiang said in a statement.

China's tax cuts this year are part of larger efforts to manage slower growth in the world's second-largest economy. Beijing is working to maneuver a delicate transition away from the old model of manufacturing-led growth, to one powered by consumption and services. Although growth grew faster than expected at 6.9 percent in the first quarter, experts have warned of a slowdown in the second half of the year.

The tax cuts were announced Wednesday after a meeting of China's State Council, led by Li. Together with measures announced earlier this year, the government estimates the cuts will lower the tax burden on Chinese companies and individuals by about 380 billion yuan this year.

Last year, China started its biggest tax overhaul in two decades as part of larger plans to lower the tax burden on services companies and to boost the overall economy.