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China’s VAT reform wins international acclaim

Updated: Apr 26,2017 7:10 AM

Premier Li Keqiang urged comprehensive implementation of replacing the business tax with a value-added tax (VAT) to promote structural reform while meeting with provincial, municipal and autonomous region leaders on April 11, 2016.

China’s efforts to promote replacing the business tax with a value added tax was a hot topic among tax experts in Paris at the fourth meeting of the OECD Global Forum on Value Added Tax (VAT).

Hosted by the Organization for Economic Co-operation and Development (OECD) from April 12-14, the meeting is the most influential forum in the tax sector.

Representatives at the meeting recognized that the successful implementation of VAT reform shows that China’s efforts to further reform its economy has not only boosted the nation’s economic growth, but also injected dynamism into the world economy.

China’s experience in replacing the business tax with a value added tax is a significant reference for tax reform around the world, said Jeffrey Owens, director of the Global Tax Policy Center of the Vienna University of Economics and Business.

Such reform is of milestone significance, according to Jin Banggui, a professor at Aix-Marseille University.

In 2016, Premier Li Keqiang announced in the government work report a plan to fully implement VAT reform in May and promised that taxes in all sectors will be reduced.

In fact, as early as in 2012, Premier Li, who was then vice-premier of the State Council, led a trial of VAT reform in Shanghai’s transportation industry and some modern service industries.

At a 2013 State Council executive meeting presided over by the Premier, a decision was made to further expand VAT trials across the country.

As an important move to enhance reform, VAT reform will inevitably affect some people’s interests. But the country must be resolved to ensure the successful implementation of the reform, according to the Premier at a State Council symposium on VAT reform in April 2016.

Reform led to remarkable achievements in 2016, as more than 570 billion yuan ($82.8 billion) in taxes were reduced for companies in all sectors and The Wall Street Journal regarded it as China’s greatest tax reform in 30 years.

VAT reform also has won international recognition. In 2016, the OECD made a third-party review on the effect of China’s VAT reform and spoke highly of China’s efforts to strengthen tax reform.

The full implementation of replacing the business tax with a VAT has been listed as a priority task in the 2017 government work report, aimed at simplifying the structure of the VAT rate while creating a transparent and fair tax environment to further ease the tax burden on enterprises.

One month after the National People’s Congress (NPC) session, the State Council decided at an executive meeting to lower the VAT rate from 13 percent to 11 percent in various sectors, such as agricultural products and natural gas, starting July 1.

The Chinese government showed strong strategic decision-making ability in successfully pushing forward this tax reform in such a short period, Owens said.

Owens added that 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.

According to Pascal Saint-Amans, the director of the OECD’s Center for Tax Policy and Administration, this major tax reform has achieved great results and its performance also reached the highest global standard.

The implication of VAT reform is to give impetus to economic growth, and boost upgrading and transformation of the economy through reducing enterprises’ tax burden and promoting tax adjustment, Premier Li said.