Au­thor­i­ties ‘to be hit by ad­just­ment to VAT’

China Daily (Canada) - - TOP NEWS - By ZHENG YANGPENG zhengyang­peng@chi­nadaily.

A me­dia re­port that lo­cal govern­ments’ share of val­ueadded tax rev­enues will be raised from 25 per­cent to 50 per­cent will not make up for the dis­ap­pear­ance of the busi­ness tax in China, ac­cord­ing to an an­a­lyst.

Bei­jing may need to use other sources of rev­enue to com­pen­sate lo­cal au­thor­i­ties, the an­a­lyst said.

Zhang Lianqi, a fi­nan­cial ex­pert close to the Min­istry of Fi­nance, said the in­crease is very likely to be in­tro­duced, while the min­istry did not re­spond to a re­quest for com­ment.

The cen­tral and lo­cal govern­ments’ pro­por­tion of VAT — China’s largest tax— will be ad­justed to 50-50 from 75-25, Eco­nomic In­for­ma­tion Daily re­ported on Wed­nes­day, cit­ing a doc­u­ment drawn up by the min­istry, for which opin­ions have been sought in­ter­nally.

The news­pa­per is af­fil­i­ated with Xin­hua News Agency.

The change is be­ing made to win­lo­cal govern­ments’sup­port for the am­bi­tious VAT re­form, which byMay 1 will be ex­panded to the prop­erty, con­struc­tion, fi­nance, and con­sumer ser­vices sec­tors. Launched in 2012 as a pi­lot pro­gram, the re­form is aimed at elim­i­nat­ing re­peated tax­a­tion and cor­po­rate bur­dens.

The news­pa­per said the draft­may be opened for pub­lic opin­ion.

When the re­form is im­ple­mented fully, busi­ness tax, once the largest tax source for lo­cal govern­ments, will van­ish, in­cur­ring huge losses for them. Lo­cal of­fi­cials have ar­gued for months that their share of the new VAT should be in­creased to make up for the short­fall.

VAT rev­enue last year to­taled 3.11 tril­lion yuan ($480 bil­lion).

Hu Yi­jian, a tax pro­fes­sor at Shang­hai Univer­sity of Fi­nance and Eco­nomics, said a study he made showed that if the pro­por­tion is ad­justed to 50-50, this in ef­fect would be a re­ver­sion to the cen­tral-lo­cal ra­tio be­fore the VAT re­form.

Hu said that some re­gions rely more on busi­ness tax than oth­ers, so the 50-50 ap­proach is a lit­tle un­fair on re­gions that are rich in busi­ness tax, be­cause they bear greater losses. Bei­jing could use in­creased tax re­funds to com­pen­sate them.

How­ever, Zhang Bin, a re­searcher at the Chi­nese Academy of So­cial Sciences, said the cen­tral gov­ern­ment’s share of VAT should be raised be­cause a greater stake in VAT may en­cour­age lo­cal govern­ments to com­pete for in­vest­ment more ag­gres­sively.

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