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Personal tax cuts will boost Chinese domestic spending, says Aubrey Capital Management

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The Chinese middle classes could soon become more affluent thanks to a significant tax boost for lower earners, says Aubrey Capital Management.

Aubrey Emerging Markets fund manager, John Ewart, says: “The Chinese government is reducing the levels of taxation that are applied to the working population and this increase in disposable income is expected to support the consumption dynamic which has been an important driver in the growth of the service industries in recent years.
 
“The Ministry of Finance periodically reviews income tax rates and allowance sums, and this had not been reviewed since 2011. The average citizen has enjoyed over 9 per cent annual disposable income growth since then and this has resulted in an increasing number of workers falling into the tax net. 
 
“The recently introduced change will raise the minimum threshold for paying personal income tax from RMB42,000 to RMB60,000 per year, and the Ministry of Finance estimates the share of the population paying tax will fall from 44 per cent to 15 per cent as a result. Next year, taxpayers will be allowed to deduct expenses related to children’s education, interest on home mortgages, housing rent and treatment for serious diseases.
 
“Although this is not a direct response to the trade dispute, we expect this initiative to compensate to some extent and believe that the increased disposable income will be embraced by consumers and have a positive economic impact,” says Ewart.

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