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China Cuts Taxes On Software And IC Companies Amidst Escalating Trade War With The US

China Cuts Taxes

While the United States imposes tariffs that threaten to stifle Chinese IT firms, including Huawei, China cuts taxes on software and integrated circuits (IC) enterprises, and industry experts said that the US firms could lose, if Chinese firms successfully replace foreign suppliers.

China Is Making Efforts To Support The Development Of The Industry.

According to a statement on China’s Ministry of Finance’s website on May 22, China will extend preferential income tax treatment to firms involved in integrated circuit design and software, in an attempt to support the development of the industry.

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The ministry further stated that if these companies were profitable before the end of 2018, they can be exempted from paying income taxes in the first two years. The tax rate for those enterprises will be split fifty-fifty to 12.5% from 25% in the third to fifth year, said the ministry.

The statement comes amid a rising trade war between the US and China.

Companies Pay Lower Taxes, But Get Huge Investments.

The Deputy Director, International Market Research Institute, Ministry of Commerce, Bai Ming, told the Global Times that “Microchips and other components are just like ‘food’ for the IT companies, so they are quite basic and essential.”

In Bai’s statements, “The government is providing a direction, and telling the market that the software and integrated circuit industries will be a hot field to invest in, which means relevant companies will not only pay lower taxes, but will also receive huge investments.”

A software industry expert based in Shenzhen, disclosed that most electronic devices (smartphones and tablet computers) are assembled in China, but the device manufacturers, however, normally use microchips and other components produced by vendors from the island of Taiwan, the US and Japan.

Game Of Profit: Who Gains More?

According to experts, China is making possible efforts to develop its own software and integrated circuit vendors to lower the risk of depending too much on foreign suppliers, especially those from the United States.

“In other words, the US is forcing China to make such changes. Otherwise, US suppliers can continue to profit from the great demand of Chinese manufacturers. So maybe a few years from now, US suppliers will lose this market if the trade war and the US blacklist policy continue in the long term and China successfully replaces US suppliers,” the Global Times reports.

The Impact Of This On Chinese Software And IC Firms.

The news has a tendency to push Integrated Circuit and software-related stocks higher in the coming trading days, though shares of several Chinese software and IC firms were already up before now, with the likes of Beijing-based China National Software and Service Co., and Guangdong-based SGSG Corp., climbing to their 10% daily limit on May 22.

The US-launched trade war is not only about imposing export controls against Chinese goods, but also putting Chinese IT companies on a supplies blacklist.

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