Leaders call for further revisions to VAT reforms

China will continue to refine the value-added tax reform pilot program to enable further economic transformation and upgrades, a State Council executive meeting chaired by Premier Li Keqiang decided on Friday.

The reform was first piloted in Shanghai in 2012. It was expanded nationwide in May 2016. China’s VAT rate structure was further cut from four to three tiers (6 percent, 11 percent and 17 percent) last month, with tax rates for farm produce, tap water and books reduced to 11 percent from 13 percent.

“The full implementation of the VAT reform pilot program is a strong pillar of this administration’s efforts to boost the effectiveness of the proactive fiscal policy and the supply-side structural reform,” Li said. “One year on, the reform is paying off. Sectors across the board have seen their tax burden reduced. It did not come easy.”

It was also decided at the meeting that the government will push forward legislation on the VAT, fine tune VAT arrangements for maximum results and secure progress through legislation.

“The VAT reform is a systematic project, and government departments should work in synergy. The VAT reform, besides reducing tax burdens for enterprises, can leverage institutional reforms and contribute to innovation, entrepreneurship, job creation and expansion of the industry chain,” Li said.

“In the meantime, it is unifying the country’s tax regime, expanding the tax base and improving the tax regime in both clarity and transparency,” he added.

The total amount of tax cuts from the pilot program has reached 1.61 trillion yuan ($241.1 billion) as of June, including 85.12 billion yuan in tax cuts since the program’s expansion in May 2016, according to the Ministry of Finance.

The services sector has received a significant boost, having grown by 7.8 percent and accounted for 51.6 percent of the GDP in 2016. Firms in the manufacturing sector have seen tax burdens reduced by 24 billion yuan since May 2016, spurring upgrades to the sector.

The reform also has given rise to innovation, entrepreneurship and development of new business models. Small firms have been the biggest beneficiary among all market entities. Problems remain, though. The VAT rates are still more tiered than the international average. There are still inconsistencies in rates for goods and services and for different businesses in the same sector. Some sectors and taxpayers are still yet to enjoy full VAT deductions.

Those at the meeting on Friday decided that more training will be offered to familiarize taxpayers with new policies and bring about the reform’s full benefits.

Authorities will work on service delivery by simplifying taxation procedures for greater efficiency and convenience to taxpayers, and promoting the application of electronic invoices.

“The tax reform is a fundamental and significant reform that will benefit economic development. We need to keep adjusting and improving the tax regime and solve problems that come along in a timely manner. Excessive taxation is off limits,” the premier said.