2020 Global Health Care Outlook


Tax update on China's pharma & healthcare sector after COVID-19

The novel coronavirus, COVID-19, has spread rapidly across China since the beginning of 2020. As the epidemic has continued, it has affected China and the global economy, shaping up to be the biggest challenge multinationals have faced since the Global Financial Crisis in 2008.

The epidemic will likely lead to profound immediate and long-term changes to the dynamics of China's Life Sciences & Healthcare (LSHC) industry. According to a Deloitte China survey of 104 leading pharmaceutical executives, most companies in China are taking a proactive approach to the COVID-19 outbreak, although the epidemic has also exposed the need for improvements throughout China's healthcare system.

In response to the epidemic, the Chinese Government and central bank have announced fiscal stimulus and monetary policy to ease pressure on the economy. The main objective of China's monetary easing, including cutting the reserve requirement ratio and expected reductions in interest rates, is to give greater incentives for banks to channel funds into the real economy. The more expansionary fiscal policy that has been announced will include a combination of tax cuts and subsidies, infrastructure projects and social welfare and health initiatives.

As part of its fiscal policies, the Government has also provided various contributions and tax reliefs for companies, particularly those in the LSHC industry.  


China's Government's contribution relief and tax reliefs

The Chinese Government took rapid action to assist companies, and we list highlights of its tax reliefs below. Several are specifically for LSHC industry players and others apply to all businesses.

LSHC Industry related tax reliefs


Specific tax reliefs

Supplies of goods for virus prevention and epidemic control

  • Several measures introduced to increase production capacity of goods and supplies required to combat COVID-19:
    • "Key manufacturers" can claim one-off deductions (rather than depreciation) for expenditure incurred in acquiring manufacturing equipment necessary for EIT.
    • "Key manufacturers" can claim refunds of any "incremental unutilized input VAT" on a monthly basis. This VAT consists of the excess of unutilized input VAT at the end of each month over unutilized input VAT as at 31 December 2019.
    • Services provided for transporting "key goods or supplies" are exempt from VAT.
  • The list of "key manufacturers" and "key goods or supplies" will be determined by government authorities.


  • The tax relief measures allow a full deduction for EIT and IIT purposes for the following donations of cash and goods for coronavirus prevention and medical treatment.
    • Cash and goods donated through qualifying social organizations or national and local governments.
    • Goods donated directly to designated hospitals and supported by donation receipts issued by those hospitals.
  • Donation of such goods is exempt from VAT, consumption tax, city construction and maintenance tax, as well as national and local education surcharges.
  • The scope of the existing import tax (customs duties and import VAT) exemption rules on donated goods used for coronavirus prevention and medical treatment is expanded.

Incentives for individuals

  • Medical personnel involved in the response to the coronavirus outbreak are exempt from IIT on special subsidies and bonuses paid in accordance with standards and as prescribed by local governments.
  • All employees (regardless of sector or whether they are medical personnel) are exempt from income tax on employer-provided medicine or supply charges for coronavirus prevention and medical treatment.


General measures and tax reliefs


Specific tax reliefs

Stabilization of global trade and minimizing trade cost

  • Except for certain products of a "2 highs and 1 resource" nature (i.e. high contamination, high energy consumption and resource intensive), VAT refunds on exported products will be "fully captured", mitigating any gap between the applicable VAT rate and VAT refund rate.
  • Starting from 20 March, the VAT refund rate for almost 1,500 products was increased.
  • These measure will help minimize trading costs for exporting enterprises, and stabilize as well as incentivize export business.

More Customs initiatives and measures

  • China Customs is commencing its annual Tariff Survey for 2020, collecting and evaluating proposals for any adjustments in import and export tariffs and license controls. In light of the special economic and trade environment evolving amid COVID-19, it provides the opportunity for businesses to voice their comments.
  • In the LSHC sector, epidemic control and prevention materials will continue to be in demand across Chinese and overseas markets. Tariff rates, license control requirements of production materials, equipment and parts are anticipated to be one of the key focuses of the 2020 Tariff Survey.

Reduction of Social Security and housing funds contribution

  • Local governments (outside Hubei province) can exempt SMEs from contributions from February to June 2020 and reduce large businesses' required contributions by 50%  from February to April 2020. The local government in Hubei can exempt all businesses for contributions from February to June 2020.
  • From February to June 2020, local governments can reduce required medical insurance contributions by 50% for all businesses.
  • Businesses affected by the coronavirus outbreak can apply for extensions of no more than six months for payment of Social Security.
  • Enterprises can apply to extend payment of housing funds to the end of June 2020.

Ease of fulfilling tax compliance obligations

  • Upgrading and streamlining of online tax matter processing (website + app) to allow 95% or more taxpayers to report tax online.
  • Extension of tax payment deadline for up to three months available for small and mid-sized companies in certain locations.


Our observations

With COVID-19 now a global pandemic, we expect governments around the world and in China to take further measures including tax policies to prevent the economy from slumping further, and encourage the development of more effective healthcare systems. This could provide opportunities for LSHC players that are directly or indirectly involved in supplying key medical supplies and building up improved healthcare system.

Companies should immediately look into their eligibility for  government contributions and tax reliefs, and continue to monitor for further government measures.

In the medium- to long-term, our industry survey shows the digital transformations of LSHC companies will accelerate, creating the need not only for operational model optimization but also more efficient tax management.  

In addition, we expect China's Government's continuous intention to provide more affordable medicines through policies such as Volume Based Purchase, the Two-invoice System, Healthcare Reform and the Market Authorization Holder System, to motivate companies to look into alternative business models,  transfer pricing, government incentives and tax compliance and liabilities when considering business strategies to address regulatory changes.  This will not only apply to companies introducing new products into China, but also to how companies organize their China business models to ensure regulatory and tax compliance as well as maximize potential benefits. We look forward to continuing to share our observations with you.

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