China May Cut Taxes to Aid Light Industry

China will soon announce new measures, including tax cuts, to help light industry with the goal of boosting domestic consumption and moving the sector up the value chain over the next three years, state media reported on Wednesday.

CNBC.com

The support plan is part of a concerted government campaign to prop up growth, which slowed in 2008 to a seven-year low of 9 percent.

Beijing has already unveiled steps to help the auto, steel and textile industries to complement a 4 trillion yuan ($585 billion) stimulus package and an increase in bank lending.

Citing unnamed sources, the Shanghai Securities News and 21st Century Business Herald said China would cut consumption taxes on alcohol, cosmetics, precious jewelry and watches while increasing import tariffs on luxury consumer goods.

Beijing would increase export tax refunds on a wide range light industry products, including home appliances, furniture, leather and hardware, back to the levels in place before July 1, 2007, the newspapers added.

The government would also give tax breaks to exporters of Chinese-branded goods and encourage preferential purchases of made-in-China goods for major government-backed projects, they said.

Beijing is also considering increasing government stockpiles of sugar, milk products, salt, pulp and paper, the reports said.

The government, which this month rolled out a nationwide scheme giving farmers a 13 percent discount on purchases of home appliances, will encourage local governments to issue shopping vouchers to low-income groups, the newspapers said.

The cities of Hangzhou and Chengdu have already distributed discount coupons to poorer residents, while Taiwan is handing out $100 in shopping vouchers to its entire 23 million population.

The reports also revived speculation that China would raise the threshold at which individuals start paying income tax, now 2,000 yuan a month.

Numerous reports by state media and brokers late last year predicted an increase in the threshold in 2009, but expectations faded as the Finance Ministry's tax revenues deteriorated rapidly because of the downturn in the economy.

Alongside the plan to help light industry, media reports said the State Council, China's cabinet, would soon approve plans to help the petrochemical and non-ferrous metals industries.

Copyright 2009 Reuters. Click for restrictions.