A teller counts cash at a bank branch in Hangzhou, capital of East China's Zhejiang province. [Photo by Hu Jianhuan/For China Daily]

A tax incentive for business innovation – announced on March 24 at an executive meeting of the State Council– is reportedly set to boost corporate research and development in East China's Zhejiang province.

Under the measure, the ratio of extra tax deduction on the R&D costs of companies will be raised from 75 percent to 100 percent, starting from Jan 1 this year. 

This means, for every one million yuan ($152,900) spent on R&D, a company will see two million yuan deducted from its taxable income.

Taxation authorities in Zhejiang have estimated that the province's companies will save an additional 58.02 billion yuan in taxes because of the new policy.

As the tax deduction on corporate R&D costs has risen in recent years, Zhejiang-based manufacturers have been encouraged to undertake more technological innovation.

"The new policy will reward us with another 100 million yuan in extra tax deduction for R&D expenses this year, compared with 2020," said Hu Minxiang, finance director of Tianneng Co, a leading power battery manufacturer headquartered in Changxing county, Zhejiang province.

According to Hu, the company's tax deduction for R&D expenses was 278 million yuan in 2020 and it is expected to reach 370 million yuan in 2021.

Hu said the tax deduction would motivate the company to step up forward-looking R&D activities for battery production. "The new policy allows enterprises to enjoy the tax deduction seven months ahead of schedule, which means our company is expected to allocate 28 million yuan into R&D in advance," he said.

To keep enterprises fully informed, tax authorities in Zhejiang will send messages about the new policy to potential beneficiaries through a digital taxation platform and add reminders in an e-platform.