Higher taxes hit only 1.5% of firms

China Daily (Hong Kong) - - FRONT PAGE - By WANG YANFEI wangyan­fei@chi­nadaily.com.cn

Only 1.5 per­cent of mil­lions of cor­po­rate tax­pay­ers face a higher tax bur­den af­ter im­ple­ment­ing value-added tax re­form, se­nior of­fi­cials with the na­tion’s top tax­a­tion bureau said on Tues­day.

“VAT re­form has brought sig­nif­i­cant ben­e­fits to en­ter­prises across sec­tors,” said Wang Lu­jin, chief ac­coun­tant of the State Ad­min­is­tra­tion of Tax­a­tion. “It is ab­so­lutely ac­cept­able to see 1.5 per­cent among mil­lions of tax­pay­ers ex­pe­ri­ence higher taxes at the time when we have a long way to go to re­fine the VAT tax­a­tion sys­tem.”

The com­ments fol­low spir­ited dis­cus­sions on­line by com­menters, many of whom called China’s busi­ness tax rate “deadly”.

Com­ments by auto glass ty­coon Cao De­wang, who has set up a fac­tory in the United States, have fed the na­tional dis­cus­sion over tax­a­tion rates.

Cao, head of Fuyao Group, said the over­all tax cost for man­u­fac­tur­ers in China is 35 per­cent higher than in the US. His com­ments have prompted con­cerns that more Chi­nese man­u­fac­tur­ers would move pro­duc­tion lines over­seas.

Li Wanfu, di­rec­tor of the Tax­a­tion Sci­ence In­sti­tute un­der the ad­min­is­tra­tion, de­nied such spec­u­la­tion and said it does not make sense to

blame the tax­a­tion sys­tem for a sin­gle com­pany’s de­ci­sion to open a US fac­tory.

Data from the ad­min­is­tra­tion shows that by the end of Novem­ber, the tax bur­den of 106.9 mil­lion cor­po­rate tax­pay­ers en­gaged in the last four sec­tors of this round of VAT re­form, has been re­duced by 110.5 bil­lion yuan ($15.9 bil­lion), a re­duc­tion of 14.7 per­cent com­pared with the same pe­riod last year.

VAT re­form, launched in 2012, which aims to re­place stan­dard busi­ness in­come taxes with VAT, has fi­nally spread to the four sec­tors — con­struc­tion, real es­tate, fi­nance and con­sumer ser­vices.

VAT is a con­sump­tion tax placed on a prod­uct when­ever value is added at a stage of pro­duc­tion and at fi­nal sale, ac­cord­ing to In­vesto­pe­dia.

Li added, “Al­though US pres­i­dent-elect Don­ald Trump pledged to cut taxes in an ef­fort to lure firms back to his home coun­try, it is so far un­clear whether he will cut tax to the ex­tent he pledged af­ter he as­sumes of­fice.” He said the US gov­ern­ment would face prob­lems pay­ing for “fu­ture in­fra­struc­ture con­struc­tion” if taxes are slashed too much.

Com­plaints al­leg­ing a high tax bur­den in China arise from many firms fail­ing to get in­voices for tax re­funds, ei­ther be­cause of a lack of knowl­edge or tax eva­sion is­sues, Li said.

Li said the re­form would have a long-term pos­i­tive ef­fect be­cause com­pa­nies need to get in­voices at ev­ery link along the pro­duc­tion chain.

“Com­pa­nies would have more in­cen­tive to pay tax in ac­cor­dance with the law in or­der to get a tax re­bate,” he said, cit­ing the ex­am­ple of Haidi­lao Hot Pot.

Chen Yong, the com­pany’s tax­a­tion chief, has said it got a 45 per­cent tax cut in three months by in­cor­po­rat­ing ev­ery step, from food pur­chases to de­liv­ery ser­vices.

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