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Premier Li: 400b yuan in tax cuts for Chinese and foreign businesses

Updated: Mar 30,2018 10:03 AM

The State Council executive meeting on March 28, preside over by Premier Li Keqiang, introduced more VAT reform measures to further lower the burden on market entities.

The meeting decided to roll out three tax reduction measures, which will cut 400 billion yuan ($63 billion) in taxes for market entities in 2018.

“We must send a clear message to society that this round of tax cuts will be open to all manufacturing companies. All businesses registered in China, including Chinese and foreign-owned companies, will be treated equally,” the Premier said.

Total tax cuts of 2.1 trillion yuan over last 5 years

To further improve the taxation system, and support development of the real economy such as small and micro-sized enterprises, the meeting decided to further relieve burdens on market entities.

Starting from May 1, 2018, the tax rate for manufacturing will be lowered from 17 to 16 percent, and the rate for transportation, construction, basic telecommunication services and farm produce from 11 to 10 percent, according to a decision at the meeting.

The meeting also decided to unify the standard for small-scale taxpayers, raising the threshold of taxable annual sales volume for industrial and commercial enterprises from 500,000 yuan and 800,000 yuan to 5 million yuan. Enterprises registered as general taxpayers will be allowed to switch their status to small-scale taxpayers within a given time.

Eligible enterprises in advanced manufacturing, modern services and electric utility will receive a lump-sum refund for their input VAT payments yet to be deducted.

“This is an important measure to promote upgrading of the manufacturing industry, and relieve burden for manufacturing enterprises,” Premier Li said. “VAT reform starts pilot schemes in some industries, and will gradually expand its coverage. To further deepen VAT reform, we also need to start from specific industries, and move forward through exploration.”

First VAT pilot areas were the transportation industry and some modern service industries in Shanghai. By 2016, pilot schemes covered all industries; by 2017, the previous four-tiered tax rate of VAT were simplified to three. Officials in related ministries reported that the total tax cuts for market entities in the past five years reached 2.1 trillion yuan.

Premier Li stressed that VAT reform is an important tax reform. It not only reduces the burden on enterprises, but can also promote the construction of a unified tax system, eliminate double taxation, and effectively extend the industrial chain and expand the tax base, the Premier said.

“Business taxes are replaced by VAT, and shared by central and local governments 50:50 — this is a great change for the tax system,” Premier Li said. “Practice proves that VAT reform not only can help relieve tax burdens on enterprises, maintain taxation fairness, but also help to adjust structure, and promote a healthy development of the economy.”

Reduce tax burdens in every sector

The basic goal of expanding VAT reform is to reduce tax burdens in every sector, Premier Li stressed at the meeting.

The Premier noted that in the face of downward economic pressure and difficulties in fiscal revenues that occurred several years ago, the government has continued to expand VAT reform pilots nationwide to more industries, and strive to reduce tax burdens for all businesses.

Despite many negative views, related departments have achieved this goal through relentless efforts, said the Premier.

With steady and good momentum in economic growth and fiscal revenues today, the Premier urged continuing to cut tax rates to benefit all industries.