China's Ministry of Finance and State Administration of Taxation have jointly issued Announcement No. 2 of 2022, which extends the tax payment deferral policy introduced by Announcement No. 30 of 2021 for SMEs in the manufacturing sector. The extension is one of several measures announced by the National Development and Reform Commission (NDRC) in Notice No. 273 of 2022 to support economic growth.

Extended Tax Payment Deferral

Announcement No. 2 of 2022 provides an extension of the tax payment deferral provided by Announcement No. 30 to 6 months for the fourth quarter of 2021 for small, medium, and micro enterprises (originally, a 3-month deferral was provided). It is also provided that if a taxpayer qualifying for the extended deferral for the fourth quarter of 2021 has paid tax before the implementation of Announcement No. 2 (28 February 2022), then the taxpayer may claim a refund and enjoy the extended deferral policy.

Further to the extended deferral for the fourth quarter of 2021, Announcement No. 2 also provides a 6-month deferral for the payment of taxes for the first and second quarters of 2022, including a 100% deferral for manufacturing enterprises with annual sales revenue below CNY 20 million (small and micro enterprises) and a 50% deferral for enterprises with annual sales revenue of CNY 20 million to CNY 400 million (medium enterprises).

With regard to the deferral for the first and second quarters of 2022, Announcement No. 2 of 2022 contains a similar approach as provided in the prior announcement for determining the sales revenue amounts. This includes that annual sales are determined according to the sales in the period January to December 2021 if the enterprise has been established for at least one year as on 31 December 2021. If established for less than one year as on 31 December 2021, the annual figure is determined according to the sales for the reporting period (month) ending 31 December 2021 multiplied by 12 months. If established on or after 1 January 2022 the annual figure is determined according to the sales for the first reporting period multiplied by 12 months.

Announcement No. 2 also provides that the tax deferral for the first and second quarters of 2022 is available for enterprise (corporate) income tax and personal income tax (except withholding) for the periods January, February, March, April, May, and June 2022 (monthly payment) or for the first and second quarters of 2022 (quarterly payment), as well as domestic VAT and consumption tax, and urban maintenance and construction tax, education surcharge, and local education surcharge.

Immediate Deduction for Equipment and Tools

Another important tax measure included in NDRC Notice No. 273 of 2022 allows qualifying SMEs to deduct in full the costs of newly purchased equipment and tools exceeding CNY 5 million per unit if the regular depreciation period is 3 years. Where the standard depreciation period is 4, 5, or 10 years, a 50% deduction is allowed. Where these deductions result in a loss, the loss may be carried forward up to 5 years. Qualifying enterprises include:

• Enterprises in the information transmission, construction, leasing, and business (commercial) service industries with fewer than 2,000 employees, or less than CNY 1 billion in operating income, or less than CNY 1.2 billion in total assets;
• Enterprises in real estate development and operation with less than CNY 2 billion in operating income or less than CNY 100 million in total assets; and
• Enterprises in other industries with fewer than 1,000 employees or less than CNY 400 million in operating income.

This measure is available for equipment and tools purchased in 2022. Further details from the Ministry of Finance and State Administration of Taxation are expected regarding the implementation of this measure.