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China drops taxes on local gov't bond interests


20:29, April 26, 2013

BEIJING, April 26 (Xinhua) -- China's taxation authorities announced Friday that they will scrap two taxes on interest paid on local government bonds, hoping to make the bonds more attractive to domestic investors.

The Ministry of Finance (MOF) and the State Administration of Taxation said in a joint document that companies and individuals will be exempt from corporate and individual income taxes on the interest they collect upon purchasing local government bonds issued in 2012 and later.

The preferential tax measures will only apply to those bonds issued by the MOF on behalf of the local governments of provinces, autonomous regions, municipalities and cities with independent budgetary status, according to the document.

Local governments are not allowed to float bonds directly in China, but they can ask the MOF to issue such bonds after obtaining approval from the State Council, China's cabinet.

About 350 billion yuan (56.3 billion U.S. dollars) in local government bond sales have been planned by the MOF for 2013, according to the government budget report. Local government bonds issued in 2012 totalled 250 billion yuan.

The tax exemption announcement came after a Thursday meeting attended by China's top leaders, who pledged to accelerate the establishment of a standard local government financing mechanism.

Explosive growth in local debts in recent years has raised concerns about the financial health of the Chinese economy, making the Chinese government vigilant against financial risks this year.

Earlier this month, the State Council called for effective efforts to guard against risks in local government debt and credit markets.

The most recent data available from the National Audit Office show that local debts totalled 10.7 trillion yuan by the end of 2010.

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