October 9, 2019 / 10:49 AM / 10 days ago

China to help ease fiscal strains on local governments amid tax cuts

BEIJING (Reuters) - China’s cabinet unveiled steps on Tuesday to ease growing fiscal strains on local governments, amid a push to cut taxes to support the slowing economy.

China will shift some central government tax revenue to local governments’ coffers when conditions are appropriate, the State Council said in a statement.

It did not specify how much money would be transferred or under what terms and conditions.

The current arrangement under which central and local governments each get 50 percent of value-added taxes (VAT) will remain unchanged, while adjustments will be made to improve tax sharing among local governments, the cabinet said without elaborating.

The measures will help “support local governments in implementing tax fee reduction policies and alleviate fiscal difficulties”, the cabinet said.

“Implementing larger-scale tax and fee cuts is a key measure to cope with the current downward pressure on the economy,” it added.

Beijing has been leaning heavily on fiscal stimulus over the last year to support the slowing economy, announcing annual tax and fee cuts of nearly 2 trillion yuan ($280.85 billion) - mainly in value-added taxes.

But many local governments are facing increasing fiscal strains as the tax cuts and the broader economic slowdown reduce their revenues, hampering their ability to carry through on big infrastructure projects which Beijing is counting on to revive growth.

China’s economic growth is expected to slow further in the third quarter from 6.2 percent in the second quarter, its weakest pace in nearly 30 years, amid soft domestic demand and a bruising trade war with the United States.

Reporting by Kevin Yao; Editing by Kim Coghill

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