China’s has announced plans on reforming the nation’s taxation system, including cutting value-added tax (VAT).
As said in a statement made public at an executive meeting of the Chinese State Council chaired by Premier Li Keqiang on Wednesday, China will cut value-added tax rates as part of a tax reduction package amounting to 400 billion yuan (about $63 billion) this year. The move is intended to boost the country’s high-quality development.
The tax rate on manufacturing would be cut from 17 percent to 16 percent starting on May 1, while the rate on transportation, construction, basic telecommunication services and farm produce would be lowered from 11 percent to 10 percent, according to the statement.
The tax reductions would directly benefit high-end manufacturing and innovation-driven technology companies that are supported by the nation’s “Made in China 2025” strategy, a report by Sinolink Securities said. Profits would also be boosted in sectors including construction, mining, information technology and machinery, it said.
“Lost competitiveness due to an aging population and rising land and energy costs has pushed China’s manufacturing sector into a bottleneck,” Sinolink said. “The nation is focusing on manufacturing, especially advanced manufacturing, and using tax and fee cuts to reduce costs for them.”
The VAT reform was considered to be a major step in China’s tax regime reform. “The VAT reform has helped to reduce the overall corporate tax burden, and improve the tax regime. The reform has proven to be conducive to the transformation and upgrading of the economy, unifying the tax structure and making taxation fairer,” Li said.
The VAT reform, first piloted in Shanghai in 2013 before it was rolled out nationwide, has delivered a total tax cut of 2.1 trillion yuan over the past five years.
The services sector has benefited a lot from the reform and expanded at a significantly faster pace. Its added value rose to 51.6 percent of GDP in 2017, according to the National Bureau of Statistics. The reform has also had a positive effect on entrepreneurship, innovation and the development of emerging industries and new forms of business.
This round of tax cuts will apply to all manufacturing companies. All businesses registered in China, whether joint ventures or wholly foreign owned companies, will be treated equally, the premier said.
The statement also said that the country will unify the standard for small-scale taxpayers, lifting the threshold of taxable annual sales volume for industrial and commercial enterprises from 500,000 yuan and 800,000 yuan, to 5 million yuan. Enterprises registered as general taxpayers will be allowed to switch their status to small-scale taxpayers within a given time.
Premier Li Keqiang has pledged to cut taxes for firms and individuals by more than 800 billion yuan this year.
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