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New incentives to expand VAT reform

Updated: May 2,2017 2:52 PM

The government recently introduced new measures on cutting taxes and administrative fees, such as simplifying and combining VAT rates, to further expand the reform of replacing business tax with value added tax (VAT). The nationwide VAT pilot reform was launched a year ago.

The new measures have released stronger signals of lowering costs for the real economy, and showcased China’s overall plan to promote the transformation and upgrade of economy by implementing financial and tax reform, according to authoritative experts.

From May 1 last year, VAT reform tests have been expanded to real estate, construction, finance and life services to cover all sectors. Since its first pilot was launched in Shanghai on Jan 1, 2012, VAT reform has become China’s biggest move in cutting taxes and fees.

According to a forecast by the National Bureau of Statistics (NBS), by April 30, around 680 billion yuan ($98.64 billion) in taxes had been reduced since the full implementation of VAT reform. In addition, from January 2012 to February 2017, over 1.2 trillion yuan in taxes and fees had been cut.

Since the implementation of VAT reform, the tax burden of around 98 percent of taxpayers have been reduced or maintained. More taxpayers are enjoying the dividends of tax cuts, said Wang Jun, head of NBS, while delivering a keynote speech at the fourth meeting of the OECD Global Forum on VAT.

China’s VAT reform has not only adapted to its own development stage, but also relieved the burden for enterprises through building a modern VAT mechanism, which is leading the world, said Jeffrey Owens, director of the Global Tax Policy Center at Vienna University of Economics and Business.

The State Council executive meeting on April 19 approved new tax cut measures to reduce the burden on businesses, including income tax incentives for small and micro companies, and raising pretax deductions for innovation-based tech companies. These new measures further showcase China’s resolution to vitalize its real economy to the world.

The country has made unprecedented efforts to cut taxes and fees, including the launch of VAT reform, support for small and micro businesses, and measures to encourage entrepreneurship and innovation, which have achieved remarkable success, said Hu Yijian, a professor from Shanghai University of Finance and Economics.

NBS recently announced 77 tax incentives in support of mass entrepreneurship and innovation. In 2016, preferential policies for incubators were expanded to makerspace, driving a year-on-year growth of 47.3 percent in makerspace startups. And 33.6 million small and micro companies benefited from VAT and income tax incentives, with a tax cut of 114.6 billion yuan, an increase of 12.8 percent.

Many local governments have also strengthened efforts in streamlining enterprise-related charges, which is another move aimed at relieving enterprise burdens.

Currently, China’s macro tax burden is around 34 percent, lower than the world average, said Fan Yong, a professor from the Central University of Finance and Economics. He said the key to tax reform is to optimize tax structure, improve the transparency of tax and fee collection, and cut unreasonable fees.

In recent years, the Ministry of Finance joined with related departments to introduce a batch of measures to cut fees and reduce burdens for businesses, saving enterprises and individuals over 150 billion yuan each year.

The State Council has promised to cut business charges by about 200 billion yuan in 2017, by comprehensively regulating government funds, canceling 35 administrative fees paid by enterprises, and standardizing operating service charges.

This year, VAT reform will bring more benefits to market entities by reducing their burden, said Fan.

As the government is pushing forward administrative reform to create a better business environment, enterprises should improve their abilities to reduce costs through continuous innovation.