(Yicai) Sept. 19 -- China has launched a new tax policy to support research, development, and innovation in the integrated circuit and industrial machinery industries.

The tax break on R&D expenses for IC companies and industrial machinery makers will rise to 120 percent from 100 percent, the finance ministry and three other government departments said yesterday. This means that for every CNY100 they spend on R&D, they can deduct CNY220 (USD30.15) from taxable income.

For R&D costs run up in the first half of this year, companies can enjoy the new tax break in July, while for the third quarter, they can take advantage of it next month, according to regulations.

Chinese IC companies are relatively backward in technology and have limited profitability, so it is hard to catch up with developed countries and regions and significantly improve their profitability in the short term, Tian Zhiwei, deputy dean of the Institute of Public Policy and Governance of Shanghai University of Finance and Economics, told Yicai.

“In this case, it is crucial to reduce the R&D costs of enterprises,” Tian added, noting that the new policy is vital to help companies make technological breakthroughs.

China has numerous tax breaks for high-tech firms. In 2020, the finance ministry issued one to reduce or waive corporate income tax for firms in the IC field, while earlier this month it allowed advanced manufacturers to deduct an additional 5 percent from input value-added tax, which includes IC enterprises and industrial machinery makers.

The country can also consider further increasing the input VAT deduction for IC firms and reducing the individual income tax rate of high-end talent in the field, Tian pointed out.

Editor: Martin Kadiev