Value-added tax reforms to improve market vitality

Chinese authorities have unveiled detailed measures to implement value-added tax reform, a key step to boost market vitality and stabilize economic growth.

Starting April 1 this year, the 16 percent VAT rate that applies to manufacturing and other sectors will be lowered to 13 percent, while the rate for construction, transport and other sectors will be reduced from 10 percent to 9 percent, said a joint statement released on Thursday by the Ministry of Finance, State Taxation Administration and the General Administration of Customs.

The 10 percent deduction rate, which applies to buyers of agricultural goods, will be cut to 9 percent, said the statement.

“The VAT reform is not simply lowering the tax rate, but focusing on the integration with the overall tax reform. It has continued to make progress toward the long-term goal of establishing a modern VAT system, and it also leaves room for cutting the number of VAT brackets from three to two in the future,” said Wang Jianfan, director of the department of taxation under the Ministry of Finance.

To implement the statutory taxation principle, China will also accelerate legislation to deepen VAT reform, Wang said.

The joint statement came after Premier Li Keqiang said on Wednesday that China will implement a series of measures to cut VAT rates and ease the tax burden in almost all industries.

Earlier this month, Li said in his 2019 Government Work Report that VAT reform was key to improving the tax system and achieving better income distribution.

“Our moves to cut tax on this occasion aim at an accommodative effect to strengthen the basis for sustained growth while also considering the need to ensure fiscal sustainability. It is a major decision taken at the macro policy level in support of the efforts to ensure stable economic growth, employment, and structural adjustments,” Li said in the report.

Value-added tax — a major type of corporate tax derived from the sale of goods and services — reductions will benefit most of the companies, said Yang Weiyong, an associate professor at the Beijing-based University of International Business and Economics.

“The VAT reductions can effectively lighten the tax burden of enterprises, thereby increasing the investment by enterprises, boosting demand and improving the economic structure,” Yang added.