At a State Council executive meeting on March 18, Premier Li Keqiang highlighted the importance of replacing the business tax with value-added tax (VAT) in deepening fiscal and taxation reform and pushing forward economic restructuring and industrial transformation.

The meeting discussed working out concrete methods to implement the tax reform measures that Premier Li said will be adopted this year to reduce the burden on enterprises.

The business tax will be replaced with VAT in all sectors this year. Starting on May 1, the scope of work to test this measure will be extended to the construction, real estate, financial, and consumer service industries, and VAT deductions will cover all new immovable property of enterprises to ensure that tax burdens on all industries are reduced, according to the government work report delivered by the Premier on March 5.

The crucial tax reform is not just aimed at changing the tax system, as it will help remove repetitive taxation, reduce corporate burdens and promote the development of the service industry and innovation of business models, the Premier had said before.

The reform is estimated to reduce taxes on companies by more than 500 billion yuan ($77.3 billion) this year.

The government deficit-to-GDP ratio will rise to 3% in 2016, an increase of 560 billion yuan over last year, and the increase is projected primarily to cover tax and fee reductions on enterprises, a step that will further reduce their burden, the Premier said.

“We must deliver on our commitment to tax reform, which was applauded by national lawmakers and political advisers at the annual parliamentary session earlier this month,” he said.

At the executive meeting, Premier Li urged all State Council departments to pay great attention and make every effort to press ahead with the tax reform.

The Premier said that governments at all levels should vigorously promote the tax reform. Both the central and local governments must take substantial measures to carry out the reform and reduce tax costs on enterprises.

Test areas for carrying out the tax reform program have received big dividends. At a symposium in January, a senior official from Shanghai said that the city has seen the big role the pilot program played in economic restructuring after four years of reform.

At the State Council executive meeting, the Premier said that the goal of replacing the business tax with VAT must be beneficial to the development of the tertiary industry as well as research and development. The reform will not only ease the burden on enterprises, but also will be conducive to the economic upgrade of China and can help relieve pressures from the downward economic trend, he added.

Many countries introduced VAT in the middle of last century to promote the development of industrialization and the service industry, greatly boosting employment, Premier Li said. It is our first step to replace the business tax with VAT. After this step, we can then push forward structural adjustment and bring more vitality to both enterprises and the economy, the Premier added.