A tax official from the Ministry of Finance said at a recent news briefing that China's phased tax and fee reduction policy introduced in 2020 to deal with the novel coronavirus outbreak will be phased out in an orderly manner, but the implementation period of value-added tax reduction for small-scale taxpayers will be extended.
That means the exit of the temporary tax and fee reduction policy is conditional, that is, based on the necessity of maintaining needed support for economic recovery.
At the same time, the proactive fiscal policy will be maintained to boost the country's economic recovery and development, and more targeted policy measures are likely to be adopted.
Under the combined effects of various policy measures, the impact of the epidemic on China's economy has been reduced to a large extent, and thus many temporary financial, fiscal and tax policies can be phased out. Their continuous implementation could be harmful to not only the banks and State coffers, but also the economy itself, given that excessive money issuance and policy support will create excess of liquidity and data bubbles in the market, which will have a negative impact on macroeconomic decision-making and create hurdles for sustainable economic development.
While the impact of the pandemic on the domestic economy has been minimized, globally the pandemic has not been as effectively controlled, and thus continues to greatly impact global supply and industrial chains. In particular, some developed countries have released excess liquidity for economic recovery, increasing the likelihood of inflation. As a result, developing economies will face growing pressures from imported inflation and the sustained rise in prices of bulk commodities.
Therefore, even after the financial, tax and credit support policies are phased out, it is still necessary for China to retain and extend some policies. For example, not only should tax cuts for micro, small and medium-sized enterprises be continued, but some new, targeted ones should be rolled out based on their actual needs. The sustained rise in commodity prices have had a great impact on the middle and downstream enterprises, and without sufficient policy support, some of them may not be able to survive.
These temporary and phased policies reflect the flexible characteristics of China's proactive fiscal policy and its important role in promoting economic development. China's fiscal and monetary policies both need to be more flexible to adapt to market changes and positively influence its economic development and enterprises' operation.