China's tax reforms give breaks to firms

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02:30

China's tax reforms are saving money for foreign companies in China. Shanghai's government estimated that the cuts in property and land taxes would benefit some 40,000 companies in the city.

In January, the Shanghai Tax Bureau announced it would be cutting property taxes to the lowest rate allowed by the central government. As such, companies' property tax base would be cut to only 70 percent of the purchase price.

“These cuts in Shanghai's local taxes mean we are the first in the country to carry out the central government's policies, that's obvious,” said Wang Huayu, Deputy Director of Fiscal Taxation Law Research Center at Shanghai Jiao Tong University.

The Shanghai government has also cut land use taxes beginning this year. The Shanghai Tax Bureau classifies city land into five categories for setting land use taxes, but all of the five are now enjoying a cut of 50 percent.

Comtextile Shanghai, a Hong Kong textile company setting up in Shanghai 17 years ago, has been paying high property taxes and land use taxes.

The company bought their office for around 12 million yuan (nearly 1.8 million U.S. dollars) 13 years ago, and the property taxes used to come to more than 110,000 yuan every year. And deductions under the new tax policy would save it a good deal of operating expenses.

“We are expected to save 20,000 yuan (2993 U.S. dollars) per year because of this change in tax law for properties and land use. It's quite big amount because if you look into bigger picture. Every penny counts,” said Basant Raj Bhansali, CEO of Comtextile Shanghai.

The hope is that the cuts will attract more companies and expand the tax base in the long term.

“Local governments are always under pressure to manage their financial resources well. Shanghai's actions reflect the city's desire to cut the tax burdens on companies. That will definitely attract more foreign companies, private companies and other investors to come to the city,” Wang said.