(Yicai) July 12 — Less-developed Chinese regions will need to find more diversified means to attract investments from businesses after a new ban on targeted local tax policies comes into effect next month in an attempt to promote fair market competition.
Regional administrations are prohibited from providing specific businesses tax breaks, incentives, or discounts on fees such as social insurance premiums from Aug. 1, per the new policy announced by the State Council after a review in May.
In recent years, the nation has been cleaning up regional tax policies to fit the nationwide standard, Luo Zhiheng, chief economist at Yuekai Securities, said to Yicai. The latest move strengthens such actions to profoundly impact the way that local administrations attract corporate investments, Luo added. Offering tax breaks is one of the key ways for less-developed areas to attract business investments, the chief economist said, adding that the ban should make it harder for these areas to lure capital.
Local governments can explore more diversified means to attract investments, including optimizing the business environment, increasing the efficiency of public services, and guaranteeing firms’ legal rights and interests, Luo suggested. They can also form scientific and reasonable plans to develop industries based on local industrial characters and advantages while guiding business investments, he added.
In the short run, favorable policies with smaller impacts on business survival should be cleaned up first to avoid dealing bigger blows to the local economy, said Wang Zhenyu, head of a research institute at Liaoning University. Firms that used to majorly benefit from such policies should proactively be given financial support to avoid destructive effects on production and operations, Wang added.
In the long run, local governments should pay more attention to optimizing the business environment, refining the structure of fiscal spending, and increasing the well-being of residents to fundamentally increase the local allure, Wang concluded.
Editors: Dou Shicong, Emmi Laine