China Briefing examines new tax concessions announced for China’s elderly care industry, childcare, and domestic services industry.
China’s government recently announced a series of measures to boost community-based elderly care, childcare, and household services in the country. Further, it outlined policy incentives in the form of tax and fee cuts for firms engaged in such services.
The announcement was made after an executive meeting of the State Council chaired by Premier Li Keqiang on May 29. Li explained that the concessions aim to improve people’s well-being, address the problem of an aging population, support the implementation of the two-child policy, and stimulate domestic employment and consumption
The earnings of China’s elderly care, childcare, and domestic services industries will now be exempt from value added tax (VAT) and will enjoy a 10 percent deduction in taxable income. The period of implementation is currently fixed at between June 1, 2019 and the end of 2025 – for a total of six and a half years.
Tax and fee cuts approved
The State Council meeting approved a number of financial incentives for community-based elderly care, childcare, and household services.
First, starting from June 1 this year to the end of 2025, revenue from the above-mentioned services will be exempted from VAT, and will enjoy a 10 percent deduction in taxable income.
Second, those providing real estate or land for the relevant services will be exempted from deed tax, property tax, urban land use tax, and six types of fees – including the urban infrastructure supporting fee and real estate registration fee.
In addition, the government will expand the scope of the VAT exemption for household services companies with contract-based employment.
These tax breaks aim to reduce the financial burden on such enterprises and to encourage more capital flow into the sector.
Opportunities and challenges for investors
China’s aging population is rapidly increasing. More than 10 percent of the country’s population is aged over 65 years.
Six provinces have entered the phase of intense aging with more than 14 percent of the population aged over 65 years, including Liaoning (15.17 percent), Sichuan (14.17 percent), Chongqing (14.1 percent), Jiangsu (14.03 percent), Shanghai (14.3 percent), and Shandong (14 percent). It is estimated that the average proportion of the population aged over 65 years in these provinces will reach 30 percent by 2050.
This has inevitably impacted China’s demand for elderly care services. In fact, the country’s total elderly care costs are projected to grow from about seven percent of the country’s GDP to more than 25 percent by 2050, according to Caixin Media, a well-known Chinese media group.
Currently, more than 90 percent of the elderly in China stay at home with their families after retirement. A very small number of them are provided with community-based care or institutional care.
Unlike institutional care, community-based elderly care allow old people to stay at their own home. While continuing to be looked after by their families at home, the elderly are provided with door-to-door services and day care services by community-based centers and personnel.
However, although the community-based elderly care industry model has taken shape, enterprises still face difficulties in achieving profitability and market penetration.
The expenditure of an enterprise providing such services is clear. It includes site rent, labor cost, facilities, water, and electricity costs, among other things.
The corporate profit model is also uncertain; there is a reluctance on the part of seniors to avail such services, the community-based service is still at the basic stage of development, and there is a lag between service scope and capability, all of which impacts market penetration.
Likewise, the demand-supply gap also exists in the childcare and household service industries.
According to the National Development and Reform Commission (NDRC), the revenue from China’s domestic service industry reached RMB 440 billion (US$63.7 billion) in 2017, up 26 percent year-on-year. The China Family Service Industry Association estimates that about 15 percent of China’s 190 million urban households have a demand for housekeeping services.
However, the supply of medium-to-high quality housekeeping services is insufficient. The education level of domestic service employees is generally low – only 14.1 percent of them possess educational qualifications beyond a high school degree.
In addition, the irregular management styles of domestic services companies, the absence of social security for employees in such firms, and the consequent low sense of belonging of employees to their respective companies contributes to the industry’s high turnover rate – 65 percent of domestic workers in China work for no more than six months in one company.
This in turn makes it difficult for domestic helpers to receive professional training and for professional segmented service firms to satisfactorily meet market demand.
Government subsidies for elderly care, childcare, and domestic services
To solve the above-mentioned problems and boost such services, China’s State Council has proposed the following measures:
- Increase the supply of community facilities for elderly care services
The government will make up for the shortage of such facilities in old residential areas through repurchasing or renting. Elderly care facilities will be installed as required in new residential areas and will be offered to the local residents either for free or at a low cost.
- Relax restrictions on market access to community-based elderly care services
Preferential policies on rent, water, and electricity prices will be given to community institutions providing comprehensive services, including boarding, nursing, day care, and home-visit services. Also, the Internet Plus model – utilizing the internet to improve the efficiency and quality of housekeeping services – is encouraged in offering tailored neighborhood services for senior citizens.
- Provide financial subsidies and fiscal support for elderly care services
Training programs for elderly care workers will be supported by government subsidies. Old-age allowance and nursing allowance will be offered to support community service for the elderly.
- Promote higher quality and expansion of capacity in the domestic service sector
This includes encouraging colleges and vocational schools to launch majors in domestic services, providing funding support for the construction of eligible training bases under the central government budget, and lifting restrictions on the renting of premises by domestic service enterprises in the community.
China Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Dalian, Beijing, Shanghai, Guangzhou, Shenzhen, and Hong Kong. Readers may write to email@example.com for more support on doing business in China.