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Reform of China's Value-Added Tax System Could Cut CNY100 Bln in Tax Revenue: Official

03-26 14:03 Caijing
More than 100 billion yuan (about 15.8 billion U.S. dollars) could be cut in tax revenue if the on-going reforms of value-added tax (VDT) expand nationwide

More than 100 billion yuan (about 15.8 billion U.S. dollars) could be cut in tax revenue if the on-going reforms of value-added tax (VDT) expand nationwide, a top government official said, quoting a test result.

The test result also showed that changes from business tax to VAT would boost GDP growth by 0.5 percent, advance the added value of the service sector by 03 percent, push up consumption by 1 percent and power exports by 0.7 percent, Xiao Jie, Director of the State Administration of Taxation, told an economic reform in Guangzhou on Sunday.

China has piloted the change towards VAT in Shanghai from January this year for selected service industries, such as transport, with more than 126,000 taxpayers involved in the scheme.

The pilot program introduced two new 11 percent and 6 percent VAT tax rates for the services sector, compared to the current normal VAT rates of 17 percent and 13 percent.

During the period from 2009 to 2011, China’s change from a production-based VAT system to world’s common practice of a “consumption-based” system led to a total reduction of over 500 billion yuan in tax revenue, according to Xiao.

Under the production-based VAT, companies are only allowed to use direct costs to offset sales but are not allowed to use the purchase of fixed assets to offset sales, which results in double taxation.

As the pilot program expands, more cities and industries are expected to be involved, Xiao said, adding that he hoped Guangdong Province could also kick off the pilot test this year.

The move “could add demonstration effect” for the program, Xiao said.

Earlier in late February, local taxation officials in Beijing were reportedly filing application for changing business tax to VAT from July 1.

VAT is the major source of fiscal revenue for the Government of China, particularly the central government. In 2007, the revenue from VAT was 15.47 billion yuan (2.2 billion U.S. dollars) which made up 33.9 percent of China’s total tax revenue for the year.

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