BEIJING (Reuters) – China will exempt banks’ interest income from loans to small firms and rural households from value added tax, authorities said on Monday, in the latest step to address a long-standing issue of lack of financing to small firms.
The policy will be in effect from December 1, 2017 to the end of 2019, the finance ministry and tax administration said, while contracts for loans with small firms will also be free of stamp taxes from 2018 to 2020.
The supportive policies will apply to loans of 1 million yuan ($150,750) or less, said the notice posted on the finance ministry’s website.
Beijing has for years been looking for ways to encourage more financial support to China’s millions of small and mid-sized firms, which account for most of the employment in China and are more productive than state firms that are seen as the favored borrowers by China’s state-owned banks.
China’s central bank in September cut the amount of cash that must be held as reserves for banks that meet certain requirements for lending to small business and the agricultural sector.