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Economic relief: China

  • Karmen Yeung, Leadership |

On reflection, we realize that the timing of the outbreak in China was somewhat fortuitous. Due to the annual New Year celebrations, businesses were already shut down and workers had returned home. This made it possible for the government to react quickly and suspend the restart of business to assist in containing the virus.

While dealing with the health and social consequences of the virus, the government also took major economic steps with a host of relief measures aimed directly at combatting the personal and commercial consequences of COVID-19. As the world’s “first responder” to what became a global pandemic, it was necessary to take the lead in finding solutions to protect citizens and inject money into the economy.

A priority was to protect and sustain the business health of companies and industries that were hardest hit by the virus.

Preferential tax treatment

In mainland China, various national VAT incentive policies were released, many of which assist businesses that are directly affected by the virus and those that provide products and services to mitigate the disease. These include exemptions for import duties, import VAT, and the import consumption tax related to medical supplies used for disease prevention.

Imported medical supplies reagents, disinfection equipment, protective supplies, ambulances, and vehicles used for epidemic prevention and emergency roles are subject to preferential tax treatment. Companies that derive their income from transporting key emergency supplies are also eligible for the VAT exemption. This includes some public transportation and life science services, as well as postal and express services that deliver essential necessities for residents. Manufacturers that purchase equipment to expand their capacity to produce essential medical supplies are eligible for one-time tax deductions.

Separately, businesses that donate epidemic-control items directly to hospitals are also eligible for full corporate income tax deductions.

Local governments have contributed as well, with the introduction of tax incentives and tax-relief programs to support entrepreneurs in their communities, including reduced tax rates for small and medium-sized businesses. In areas such as Chengdu, the government intends to expedite the development of certain new industries such as 5G computing through various measures and tax-related measures would likely be one of the areas to be considered.

Financial support

To reduce the cost of enterprise financing, Hong Kong (SAR) has introduced concessionary low-interest business loans of up to HKD2 million, backed by a 100 percent government guarantee.

Rental subsidies for up to 6 months are being provided to local recycling enterprises. Similarly, rents have been reduced by 50 percent on government properties and others that are covered by short-term and temporary waivers. In addition, business registration fees have been waived for 2020 and 2021, along with a 4-month waiver of 75 percent of commercial electricity, water, and sewage charges.

Additional funding of more than HKD700 million has been directed to the Hong Kong Tourism Board for external promotions.1

Some local governments in mainland China have reduced the credit and loan rates for small and medium-sized businesses. Additional financial assistance is being provided through temporary waivers on property rentals, especially for companies that support the tourism industry.

The aim of all of these preferential tax policies and relief programs is to assist companies and individuals in overcoming the difficulties they experienced during the outbreak and that they will need to address throughout the recovery. Equally important, has been the need to shore up confidence in China’s economy as it wages its fight against the virus.

As China begins to turn the corner on the fight against COVID-19, it is hoped that this will generate some much-needed stability for entrepreneurs and other private companies.

We at KPMG Private Enterprise understand the potential consequences of the current global health situation for private companies. I encourage you to follow our regular series of blog posts to stay informed about how COVID-19 may affect your business strategy and operations, and to reach out to KPMG Private Enterprise advisers in your country or territory for their guidance.

Check out our guide to robust business continuity planning entitled "Leading successfully in turbulent times" (PDF 617 KB) and our business overview and action checklist entitled “Understanding the implications of COVID-19 for private companies” (PDF 382 KB).

 

Footnote

1 Government of the Hong Kong Special Administrative Region