China has cut the value-added tax rate on the manufacturing, transportation, construction, telecommunication and farm sectors by one percentage point starting from Tuesday, May 1.  

The VAT cut, announced on March 28 following a State Council, is expected to save enterprises 240 billion yuan (38 billion US dollars) a year.

The tax rate for manufacturing has been lowered from 17 to 16 percent and went from 11 to 10 percent for transportation, construction, basic telecommunication services and farm produce.

While it is only a one percentage point cut in each tax bracket, the benefits are expected to be significant, and boost production in high-end manufacturing sectors, especially industries related to the Made in China 2025 strategy.

The threshold of “small taxpayers” is also raised, from an annual turnover of 500,000 yuan for factories and 800,000 yuan for merchants to a unified threshold of five million yuan – meaning more small businesses will be taxed at lower rates.

“China's exports could be affected by Sino-US trade disputes. The VAT reform at this time will bring significant benefits for investment policies. It will also have a positive effect on companies' cash flow and research investments, and give them a more positive outlook,” said Gao Liqun, a Tax Partner at Deloitte China.

This round of reduction is a part of a tax reduction package that will amount to 400 billion yuan this year.

The VAT reform was first tried out in Shanghai in 2012 before it was rolled out nationwide. It has delivered total tax cuts of 2.1 trillion yuan over the past five years.

Premirer Li said that the VAT reform was a major step in China's tax regime reform.

"The VAT reform has helped to reduce the overall corporate tax burden, and improve the tax regime. The reform has proven to be conducive to the transformation and upgrading of the economy, unifying the tax structure and making taxation fairer," Li said during the State Council meeting.  

(With input from Xinhua. CGTN's Chen Tong also contributed to the report.)