China will continue to refine the VAT reform pilot program to enable further economic transformation and upgrading, according to a decision made on Aug 18 at a State Council executive meeting chaired by Premier Li Keqiang.

The VAT reform was first piloted in Shanghai in 2012. It was expanded nationwide on May 1, 2016. China’s VAT rate structure was further cut from four to three tiers (6 percent, 11 percent and 17 percent) from July 2017. Tax rates for farm produce, tap water and books were reduced from 13 percent to 11 percent.

“The full implementation of the VAT reform pilot program is a strong pillar of this administration’s efforts to boost effectiveness of the proactive fiscal policy and the supply-side structural reform,” Premier Li said. “One year on, the reform is paying off. Sectors across the board have seen their tax burden reduced. It did not come easy.”

It was also decided at the meeting that the government will push forward with legislation on VAT, fine tune VAT arrangements for maximum results and secure progress made in the reform in the legal form.

“The VAT reform is a systematic project, and government departments should work in synergy. The VAT reform, besides reducing the tax burden for enterprises, can also leverage institutional reforms and contribute to innovation, entrepreneurship, job creation and expansion of the industry chain,” Premier Li said.

“In the mean time, it is unifying the country’s tax regime, expanding the tax base, and improving the tax regime in both clarity and transparency,” he added.

Tax cuts from the pilot program have saved businesses 1.61 trillion yuan ($ 241.1 billion) as of June this year, including 85.12 billion yuan in tax cuts since the program’s expansion on May 1 last year, according to the Ministry of Finance.

The service sector has received a significant boost, having grown by 7.8 percent to account for 51.6 percent of GDP in 2016. Firms in the manufacturing sector have seen tax burdens reduced by 24 billion yuan since May 2016, which has spurred the upgrading of the sector.

The reform has given rise to innovation, entrepreneurship and the development of new business models too. Small firms have been the biggest beneficiary among all market entities.

Problems remain though. VAT rates are still more tiered than international average. There are still inconsistencies in rates for goods and services and for different businesses in the same sector. Some sectors and tax payers are still yet to enjoy full VAT deductions.

The meeting decided that more training will be offered to familiarize taxpayers with new tax policies and bring about the reform’s full benefits.

Authorities will work on service delivery by simplifying taxation procedures for greater efficiency and convenience to taxpayers, and promoting the application of electronic invoices.

“The tax reform is a fundamental and significant reform that will benefit economic development. We need to keep adjusting and improving the tax regime and solve problems that come along in a timely manner. Excessive taxation is off limits,” the Premier said.