A pneumonia epidemic, caused by a novel coronavirus, has spread rapidly across China since the beginning of 2020. At present, the epidemic has spread to 31 provinces (including autonomous regions and municipalities) as well as to Hong Kong SAR, Macao SAR and Taiwan region. More impactful than the SARS epidemic back in 2003, a greater number of cities and industries have been affected by the novel coronavirus epidemic. Affected industries especially include service sectors, such as hotel catering, tourism, education and training. In view of the severe situation, the Chinese government extended the Chinese New Year holidays with a view to containing the outbreak. While this has inevitably resulted in disruption to normal enterprise operations, many are actively donating money and goods to support front-line medical workers. In parallel, enterprises engaged in special fields, such as logistics, agriculture, genetics, and bio-pharmaceuticals, are persisting in their efforts to tackle the outbreak.
China’s tax and finance authorities reacted quickly to the epidemic. On February 1, 2020, the Ministry of Finance (MOF), General Administration of Customs (GAC) and State Taxation Administration (STA) jointly issued Announcement 6. In parallel, STA on January 30 issued Circular 19. These set out preferential measures to support enterprises and citizens to fight against the outbreak.
Announcement 6 clarifies that imported supplies, donated by domestic and foreign donors and used for prevention and control of the epidemic, can be exempted from import duties, import value-added tax (VAT), and import consumption tax. This is valid from January 1 to March 31, 2020. The key points of Announcement 6 include:
In addition, the preferential treatment also applies to supplies imported by the health administration for the outbreak, even though the supplies are not donated. Tax refunds can be obtained for qualified supplies for which taxes have already been paid.
Circular 19 extends February’s statutory tax filing deadline to February 24, 2020. This can be further extended by local tax authorities where the outbreak is serious (such as in Hubei). Affected taxpayers and withholding agents can apply for further extension. Circular 19 also encourages local tax authorities and taxpayers to deal with tax matters online or via mobile application.
In Circular 29, issued on February 1, government authorities including the People’s Bank of China (PBOC), MOF, China Banking Insurance and Regulatory Commission (CBIRC), China Securities Regulatory Commission (CSRC), and State Administration of Foreign Exchange (SAFE) jointly set out 30 financial measures to support the prevention and control of the coronavirus outbreak. This covers credit and financial support, security of financial infrastructure, forex, and cross-border RMB business.
Prior to this, MOF and the National Health Commission (NHC) on January 25 also issued a circular clarifying that the government will provide subsidies for treatment expenses, medical and epidemic prevention workers, medical institution expenditure on purchased special equipment, and rapid diagnostic reagents for prevention of the outbreak.
The introduction of Announcement 6 and Circular 19 in a very short time illustrates the determination of China’s tax and finance authorities to deal with this public emergency. Looking back at the financial and tax circulars issued at the time of the SARS epidemic, we expect more tax relief measures for the coronavirus outbreak in due course.
Suggestions may be made for enterprises from a tax perspective:
The crucial role of biotech enterprises, producers of protective apparatus, and medical and scientific professionals in combatting the outbreak is well recognized. We expect future tax and financial policies to provide additional support, and set out policy suggestions below.
Disaster relief measures
Industry support policies
More tax relief is expected by affected enterprises to help them endure the current difficulties and help them with recovery once the outbreak is under control. We earnestly hope that the government will consider these suggestions, and that all sectors of the community will work together to seek solutions.
KPMG is eager to work with enterprises to tackle the challenges from the coronavirus outbreak, studying possible policies and response measures, and sharing our insights on weathering the tax challenges.