19 April 2016
New Legislation Aims at Lowering and Consolidating VAT Rates: MOF
Shi Yaobin, vice-minister of the Ministry of Finance (MOF), revealed at a meeting on indirect tax reform (levying value-added tax in lieu of business tax) on 12 April that China will consider lowering and consolidating VAT rates at the time of introducing new VAT legislation.
According to MOF, certain problems still exist in the current VAT system, such as too many tax rate brackets, lack of input VAT credit for certain items, and large numbers of transitional measures. This has created a gap between China’s current VAT system and a regulated consumption-based one.
In light of this, the departments concerned are going to initiate VAT legislation in the next stage. In the course of doing so, continued efforts will be made to improve the VAT system in the hope of enhancing the results of reform eventually by way of legislation, and establishing a fairly regulated consumption-based VAT system.
MOF pointed out that the unfolding of the indirect tax reform pilot programme across the board signifies initial success of VAT reform. Currently the programme is still called pilot because reform is still in progress and the task has not been completed yet.
Meanwhile, the State Administration of Taxation (SAT) disclosed at a briefing meeting that up to now the taxation departments have completed 80% of their assigned tasks, with the progress of work ahead of schedule.
In 2016, it was put forward in China’s government work report that starting from 1 May this year the “business tax to VAT” reform will be fully implemented nationwide, extending the scope of pilots to cover the construction, real estate, financial and consumer services sectors. VAT on all newly acquired immovable properties of the enterprises in these sectors will be deductible in order to ensure that the tax burden on all four industries will only decrease and not increase.
MOF stated that according to statistics, in the early stage of the launch of indirect tax reform, the tax burden on over 97% of the taxpayers under the pilot programme was either reduced or had remained the same, with accumulated tax cuts reaching Rmb313.3 billion. As a result of bigger input VAT deductions, the accumulated tax cuts of industries which were subject to VAT before (mainly manufacturing industries) amounted to Rmb327.9 billion.
Since the launch of indirect tax reform, the scale of investment in the tertiary industry has expanded significantly, with its share in total fixed asset investment rising from 52.6% in 2012 to 56.6% in 2015. The share of value-added of the tertiary industry in GDP also climbed gradually from 45.5% in 2012 to 50.5% in 2015, surpassing the 50% mark for the first time.