(Yicai Global) March 11 -- The Chinese government has cut taxes and fees by over CNY7.6 trillion (USD1.2 trillion) in the past five years to ease the burden on companies, according to the latest data from the State Taxation Administration.

China’s tax burden, as measured as a share of gross domestic product, fell to 15.2 percent last year from 18.13 percent in 2015 thanks to government policy, Yicai Global learned from the tax authority today.

Weighted pre-tax deduction of research and development expenses, a policy aimed at encouraging scientific and technological innovation, saved CNY2.54 trillion over the five years, applying mainly to firms in manufacturing, information technology services, and scientific research and technology services, the latest STA data showed.

The number of companies entitled to benefit from the policy rose from 53,000 in 2015 to 339,000 in 2019, and the tax cut widened from CNY72.6 billion (USD11.2 billion) in 2015 to CNY360 billion last year, up 37.8 percent a year on average.

The policy has motivated firms to innovate, with investment in research and development nationwide climbing from CNY1.42 trillion in 2015 to CNY2.44 trillion last year, enabling China to take second place in the global ranking for R&D spend. 

The tax and fee cut policies have also driven an expansion in activity by China’s private firms. The proportion of taxes paid by the private sector climbed to 60.1 percent of last year’s total, up 8.6 percentage points from 51.5 percent in 2015, the data showed.

Tax cuts are likely to be smaller fall this year, having stood at over CNY2 trillion in each of the past two years, because such big reductions are not sustainable, Shi Zhengwen, at professor at China University of Political Science and Law, told Yicai Global.

The cuts must have a limit, Luo Zhiheng, deputy director of the research institute under Yuekai Securities, said, noting that the policy’s focus will shift to ‘improvement’ and greater targeting from last year’s ‘implementation.’

Editors: Tang Shihua, Tom Litting