Shi Yaobin, vice-minister of finance, and Wang Lujin, chief accountant of the State Administration of Taxation, introduced the progress of replacing the business tax with a value-added tax at the State Council policy briefing on Dec 2.

Replacing the business tax with a value-added tax is a significant and far-reaching taxation reform and a priority to improve the taxation system. Since May 1, the tests have been extended to the construction, real estate, finance, and life services sectors. So far, the tests are going well and are up to expectations.

First, replacing the business tax with value-added tax is a major part of supply-side structural reform. It is estimated that taxes amounting to 500 billion yuan ($73 billion) will be reduced, which, under the current economic situation, will effectively lower costs for enterprises, stimulate the market, and increase supply in the market.

Second, finance and taxation system reform is a significant policy measure. The establishment of a consumption-type value-added tax system and the construction of a management system of unified value-added tax system is another major achievement in finance and taxation reform. By connecting value-added tax deductions between the second and tertiary industries, the value-added tax of outsourced services of manufacturing enterprises can be deducted, encouraging manufacturing industries to purchase services and helping to integrate the manufacturing and service industries.

Third, replacing business tax with value-added tax is an important part of streamlining administration and delegating power to lower-level governments and optimizing administrative regulation and services. It will simplify the taxation system and lower institutional trade costs. Instead of managing two kinds of taxes, enterprises will have to take care of only one type of tax, which will lower their management costs and risks.

Replacing business tax with valued-added tax has been in effect for more than half a year, and the reform is the most effective policy measure to recoup business costs since the establishment of this administration. According to estimates, from May to October, the four sectors of construction, real estate, finance and life services saw 10.64 million tax payers transform their taxpaying. The value-added tax amounted to 555.4 billion yuan, and 96.5 billion yuan in tax was reduced compared with the business tax. All 26 sectors have met the target of tax reduction, their tax burden dropping 14.8 percent.

Taxation reduction goals accomplished

Premier Li Keqiang mentioned in the Government Work Report that VAT reform will be promoted in an all-around way this year — taxation for all industries should be cut, which is one of the reform’s goals.

VAT reform introduced this year is having broader influence and more outstanding effects. Judging from the statistics from May to October, taxation reduction goals have already been accomplished.

To reach the goal, full implementation and instructions were carried out. All tax payers and related staffers should understand what the policy is. On the other hand, we will improve the test policy according to any new problems and circumstances we encounter during the implementation process. By the end of October, related departments had published four policy documents to improve on some issues.

Measures to simplify procedures for VAT invoices

According to the credit level of tax payers, we have classified the management of usage of VAT invoices. For instance, tax payers with higher credit level A can receive three months of invoices at a time, and B can receive two months of invoices at a time.

VAT invoices should go through a process of verification. We also canceled the verification of tax payers with the higher credit levels of A, B and C. For tax payers in the new test areas this year that have not been evaluated for credit level, verification is not needed, temporarily from May 1, 2016, to April 30, 2017.

There were many small-scale tax payers queuing at tax bureaus at first. Measures were taken to resolve this issue. From Aug 1, trial zones were set up in 91 cities for small-scale tax payers in the accommodation industry. The policy was promoted nationwide starting in November, providing convenience for this group of people and relieving crowding at tax bureaus.

We also promoted online services. Twenty measures improving VAT services were published, among which eight concerned simplifying procedures for deputized people, cutting application times for invoices and improving the procedures. We are actively promoting online applications and offline distributions.

Measures and legislation on VAT

In the next stage, VAT reform needs to be further improved in accordance with economic development and legislative mandates. For example, tax rates need to be streamlined to increase the effectiveness of tax incentives, avoid negative impact on enterprises’ business operations and prevent tax evasion. More efforts should be made to improve the tax collection and management system with scientific approaches. Meanwhile, related policies also need to be improved to tackle new, emerging problems in VAT reform.

In addition, we should stick to the rule of law in collecting the value-added tax. Currently, the value-added tax is levied in accordance with provisional regulations and pilot measures approved by the State Council. Next, the legislation on VAT will be initiated at the right time to put the achievements of VAT reform and institutional arrangements into laws to standardize and enforce the tax system.

The Ministry of Finance will study and address the problems reported during the VAT reform testing, and improve the tax system in the process of legislation.

Measures to ensure smooth advance of tax reform

Wang said the tax authority has taken several measures to ensure the smooth advance of the tax reform.

First, more resources and first-line personnel are allocated to provide tax services, including 17,386 newly added service outlets and more than 20,000 employees. In addition, tax payers could also get their tax matters done through self-service terminals.

Second, related departments have done a lot of work to promote knowledge about the tax reform, such as dispatching instruction teams, sending out materials and texts, and organizing training sessions. People can also consult related matters through the 12366 hotline.

Third, ICT is widely applied to provide online service to tax payers.

And finally, procedures are streamlined for tax payers, and the government has put through work among central and local tax authorities, as well as urban and provincial institutions.

Tax increases in some enterprises

According to Shi, it is a universal target to reduce taxes for all industries, including the financial sector. The reason for the tax increase in some enterprises is that the input tax was not fully deducted in the initial stage of the reform.

The tax reform policy is applied to all industries, and is improving based on new situations and problems.

In addition, under VAT, some overlooked taxes should now be paid by financial enterprises. Since VAT of each enterprise should be deducted strictly with VAT invoices, buyers and sellers are paying more attention to each other, allowing no space for unpaid taxes.

However, some enterprises seem to feel their tax has increased, but it is just due to the tax they failed to pay in the past.

Lower VAT rate for service industry

The four levels of VAT tax rates — 17 percent, 13 percent, 11 percent and 6 percent — are designed to promote the smooth transition of VAT reform. For example, the tax rate for service industry is 6 percent, as its main provider is labor, while the tax rate for manufacturing industry is 17 percent, as its input tax is very high and has big dividends in tax reductions. That explains the huge gap between different industries in VAT tax rates, so it’s unfair to only compare the tax rate, but their actual tax burden is also important.

Next phase in VAT reform measures

Shi said efforts will be made to improve VAT reform by reducing the four current levels of tax rate and introducing more beneficial policies. “We will also get fully prepared for any new problems and situations in the future,” Shi added.

Wang said that the tax administration will strengthen education efforts, especially to help enterprises with a low input tax deduction rate enjoy more tax cuts and ease their tax burdens.

Meanwhile, administration streamlining on tax payment services will be further promoted. New technology, such as QR code scanning, will be used to issue an invoice, and the implementation of electronic invoices will be sped up to lower invoice costs. The coverage of lottery invoices will also be expanded to encourage the public to ask for an invoice.

Additionally, a national VAT invoice verification platform will be established to curb fake invoices.