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China’s VAT cuts to benefit the economy
Reference - Chinadaily
BEIJING, 29. March.2018 - China will cut VAT rates as part of a tax reduction package amounting to RMB400 billion ($63.6 billion) this year, according to a decision made at a State Council executive meeting Wednesday.
China will lower the value-added tax rate on the manufacturing, transportation, construction, telecommunication and agricultural sectors from 1.May.2018.
The tax rate for the manufacturing sector will be cut to 16 percent from 17 percent, while the rate for other industries will be lowered to 10 percent from 11 percent.
While it will be only a one percentage point cut in each tax bracket, the reduction will impact a wide range of sectors in the real economy, according to Li Xu Hong, a researcher with Beijing National Accounting Institute, a government think tank.
VAT tax cuts in the transportation industry will lower the logistics costs for the real economy, Li said.
VAT rates cut, the reform offers tax incentives for some hi-tech companies, a measure that analysts said is aimed at supporting innovation-driven growth.
Eligible enterprises in advanced manufacturing, modern services, and electric utilities will receive a lump-sum refund for their input VAT payments yet to be deducted.
The measure will have a "far-reaching impact," said Li, as it could free capital previously frozen on companies’ balance sheets.
However, successful implementation of the refund policy depends on advanced tax collection measures and the overall level of honesty of taxpayers across society, Li noted.
The reform also includes measures to unify the standard for small-scale taxpayers, as it raises the threshold of taxable annual sales volume for industrial and commercial enterprises from RMB500,000 and RMB800,000, to RMB5,000,000.
The VAT reform was first piloted in Shanghai before it was rolled out nationwide. It has delivered a total tax cut of RMB2.1 trillion over the past five years.
For Li, a more challenging job yet to be accomplished is to further reduce VAT brackets from three to two. In 2017, China streamlined its VAT brackets from four to three.
China aims to reduce taxes on businesses and individuals by more than RMB800 billion this year, according to a government work report released in March.2018.
While the VAT reform will help accomplish almost half of the target, policies to cut the remaining RMB400 billion of taxes will be released soon, said Wang Jian Fan, an official with the Ministry of Finance.