China to Support Slowing Economy by Cutting VAT

By: Yassmine ElSayed

CAIRO, Mar. 5 (SEE) - China is planning to support the slowing economy, by cutting the value-added tax rate that covers the manufacturing sector by 3 percentage, a source told Bloomberg.

A 3 percentage-point cut to VAT could deliver a boost worth up to 600 billion yuan ($90 billion) or 0.6 percent of GDP, according to estimates by Morgan Stanley.

The reduction in the highest of the nation’s three VAT brackets could be announced as soon as this week, when political leaders are gathering in Beijing for the annual National People’s Congress, sources said.

The move helps corporate profits at a time when the economy is facing pressure from the U.S. trade standoff and the impact of a domestic debt cleanup. Officials have increasingly turned to tax policy in their efforts to support growth, as debt-fueled spending and monetary policy become increasingly constrained.

Premier Li Keqiang is due to deliver his annual report on economic policy today, a detailed document that sets targets for gross domestic product expansion as well as objectives for fiscal and monetary policy.