China says tax reform will boost economy, structural changes

China’s value-added tax reforms will help support the economy and speed up structural adjustments, Vice Finance Minister Shi Yaobin said on Tuesday, playing down concerns such reforms could fan property speculation.

China will replace a business tax with a value-added tax in its construction, real estate, financial and consumer services sectors, effective from May 1, and the government hopes to cut taxes by more than 500 billion yuan ($77.32 billion) in 2016.

“This will help stabilize economic growth…and also help improve economic structures,” Shi told a news conference.

The VAT reform, which was launched in 2012 as a trial program, has been applied to railway transportation, postal services, telecommunications and some service sectors.

The VAT reform has already reduced firms’ tax burdens by more than 600 billion yuan, Shi said.

The ministry said in a statement that implementing VAT reforms in the construction, real estate, financial and consumer services sectors would be more complicated.

But Shi played down concerns that the VAT reform, which will allow firms to include real estate in the scope of tax deductions, will lead to a property buying spree.

Premier Li Keqiang said that China should prevent local protectionism and improper means to compete for tax revenue during the process of reform, according to comments published on the central government’s website on Tuesday.

Li said the government would also prevent firms from taking advantage of the tax reform to utilize production capacity deemed outdated and excessive.

There would be a “reasonable solution” on how to divide the vale-added tax revenue between the central and local governments, Li said without elaborating.

Top leaders have already pledged to cut taxes and expand the government budget deficit this year to support economic growth, which slowed to its lowest level in 25 years in 2015.