Tax Reform to Help Reduce Tax Burdens in all Industries

Tax Reform to Help Reduce Tax Burdens in all IndustriesPremier Li Keqiang recently gave a message to the country’s tax and financial authorities is very clear, that the ongoing landmark tax reform must reduce the tax burdens in all industries. Just a month before the May 1 deadline of the sweeping reform which seeks to replace the decade long business tax with added VAT in China, the State Administration of Taxation and the Ministry of Finance is making sure that tax reduction measures are in place so to benefit numerous enterprises. Then on May 1, the business-tax to VAT pilot program that started four years ago will be expanded to the remaining four sector namely construction, finance, property and consumer service that involves ten million companies which can contribute around 80 percent to the total business tax revenue.

Beginning on May 1, the country’s business-tax-to-VAT pilot program, which began four years ago, will expand to the remaining four sectors — property, construction, finance and consumer services — which involve at least 10 million companies. Together they contribute 80 percent of China’s total business tax revenue. An 11 percent Vat is added on construction and real estate companies while the finance and consumer services sector will be getting a 6 percent rate. VAT deductions will cover all of the enterprises new real property as well. The business-tax to VAT reform is the key to ensuring the effectiveness of the proactive fiscal policy and to push ahead with the structural, supply side reform that is planned for this year.

For this year the government deficit has been augmented and the increase of which is 560 billion yuan more compared to last year is meant to cover tax reductions for enterprises following the tax reforms. The reform measures alleviates the tax burden on enterprises and bolster the development of the service sector that contributes around half of the country’s gross domestic product. The imposed VAT on tangible goods with services is being subjected to business tax imposed on a company sales this includes costs, which results to double taxation. Compared to business tax VAT avoids double taxation by taxing only the difference between the commodity price before taxes and the cost of production. Elimination repeated taxation, the reform unifies the country’s taxation system and create a fair market environment.

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