How is the 『Expansion of Sales Tax Change to VAT』?
On October 18, Chinese Communist Party (CCP)
Vice Premier Li Keqiang personally presided over the “Expansion of Sales Tax Change to VAT” pilot forum.
He stressed at the meeting that it is an important strategy
to promote the manufacturing industry, as well as resolve the issue of the lagging service industry.
He also said there will be more pilot places
to further expand tax cuts to the whole country.
What is the reaction of Chinese small and medium
sized enterprises (SME’s) on these tax cuts?
In this strategy, transportation and service sectors, which
used to pay sales taxes, will concert to paying VAT tax.
Purchasing receipts that previously could not be
deducted, can be deducted in the VAT program.
Thus, the taxable amount is reduced and enterprises
will pay less tax, and have higher profits.
Duan Shaoze, Beijing Normal University MBA mentor:
“The service sector in the past was taxed over the total amount.
Business must pay tax as long as there
was service, whether profitable or not.
There were many duplicate taxes in the service
sector, which aggravated tax burdens of the sector.
It was unreasonable."
When speaking to NTD, Duan Shaoze gave the example
of tour companies taking tour groups to eat at restaurants or sightseeing, and that they need to pay tax.
Another example is vehicle plants selling parts,
such as steel, glass, or tires. They will pay tax.
The total taxable amount was increased.
Duan Shaoze: “It would be different after changing to VAT.
Tax already paid over one product or one service is deducted
afterward, no matter how many times it is transacted.
No matter how many times it was
circulated, the tax rate is the same.
Moreover, if there is no profit, there will be no tax, compared
with sales tax, which people pay as long as there is transaction.
The more it was transacted, the more tax people pay.”
Currently the “sales tax change to VAT”
has already been implemented in Shanghai.
Since August, it has been expanded to many places,
include Beijing, Tianjin and Jiangsu Province.
In the future, it will be implemented across China.
But not all SME’s agree with this reform.
Beijing Dajun Economic Observer Research Center
Director Zhong Dajun highlights that
enterprises in Beijing began in July,
to register for the transfer at the National Tax Office.
The procedures were not completed until October 1.
It involves so many people and a lot of effort.
Once implemented all over the country, he does not know
how much man power, resources and money will be wasted.
Zhong Dajun: “If the government is willing to reduce tax,
it can lower the tax rate. Why does it make a big deal?
I do not know how those top people predict the benefits.
The officials just say whatever they want to.
Businessmen have to follow up in the mess.
We used to pay sales tax at the local offices.
Now we must go to the National Tax Office to pay VAT.”
The prediction by Chinese officials is that after
VAT is implemented in China, the yearly tax income will reduce by 100 Billion RMB.
Chinese tax officials expressed recently that
the service industry will increase, and will bring up 0.5% of GDP, after VAT is implemented nationwide.
Mr. Wen, SME owner: “Sales tax changing
to VAT mainly targets the service sector.
If the 17% tax rate is reduced several
points, it will help us SME a lot.”
Although the cost reduction of the service sector
will stimulate manufacturing and reduce prices,
Mr. Wen does not think it will help manufacturing.
Mr. Wen: “In addition, after the reform, we do not
see the price decline, because inflation is serious.
Therefore, we see the purpose is to stimulate
the economy, not to reduce cost for manufacturers.”
It is reported that at present, tax reform applies
to sectors such as leasing, transportation, R&D,
technology consulting, cultural & creative services,
logistics, and verification consulting.