China sets deadline for VAT reform

Chinese Minister of Finance Lou Jiwei gives a press conference on the sidelines of the fourth session of China's 12th National People's Congress at the press center in Beijing, capital of China, March 7, 2016. (Xinhua/Li Xin)

BEIJING, March 7 -- Chinese finance minister said on Monday that business tax in all industries will be replaced by value-added tax (VAT) before May this year, a concrete step in deepening fiscal and taxation reform.

"The progress in the VAT reform last year was slower than having planned, efforts would be made to meet the May 1 deadline," Lou Jiwei, minister of Finance, said at a press conference on the sidelines of the National People's Congress annual session.

Starting from May 1, the replacement of business tax with VAT will be extended to construction, real estate, finance and consumer services, to ensure that the tax burdens on all industries be reduced, Premier Li Keqiang said in a government work report to the national legislature.

The great number of corporate tax payers, about 9.6 million, in the four mentioned industries caused slow progress last year, Lou said.

Business tax refers to a levy on the gross revenue of a business while VAT refers to a tax levied on the difference between a commodity's price before taxes and its cost of production.

A pilot scheme on business tax-to-VAT was initiated in 2012.

From 2012 to the first half of 2015, the measure has resulted in tax savings of over 484.8 billion yuan (75 billion U.S. dollars), accounting for 0.2 percent of GDP in the period, according to a report of China International Capital Corp. Ltd., a joint venture investment bank.

Lou encouraged businesses to make good use of the money saved from the VAT reform, especially by channeling it into higher efficient investment, to promote industrial upgrades, which satisfies purposes of the ongoing supply-side structural reform.

Responding to queries about complaints of companies on actual rising tax burdens after the VAT reform, Lou said, "We may assure that VAT replacement mean lower tax burdens for an industry as a whole but not necessarily mean any companies in an industry would see lower taxes."

Lou also said his ministry is working with relevant agencies on property taxation and proposals on individual income tax reform.

However, Lou advised people not to hold their expectation too high as the reform will be in "a complicated process."