Edward Troup (second from left), chairman of the Forum on Tax Administration and chief executive and permanent secretary of HM Revenue and Customs in the UK, inspects the upgraded VAT Invoice System at Beijing Office, State Administration of Taxation on May 9.[Photo/China Daily]
Under the leadership of Central Committee and the State Council, Chinese tax administration has witnessed significant progress over the past few years. Modernizing the taxation in China by the year of 2020 has become the common goal that all the Chinese tax officials have been working towards. Many works have achieved remarkable recognition in the process.
Revamp of ‘Six Systems’
In 2013, the State Administration of Taxation set the goal which was to modernize taxation by the year 2020.
One of the many important features of the modernized taxation was that it would consist of the “Six Systems”. A comprehensive legislation system will be established to ensure that tax laws are high in the legislative hierarchy and the implementation of the “tax governance by law” principle. A mature institutional system will be built to favor sound economic development, social fairness and equal treatments of market players. A quality taxpayer service system will be put in place to serve the strategic opening-up and economic development. A technology driven administration system will be adopted to improve the effectiveness and efficiency by incorporating the risk management techniques. A powerful information system will be developed to collect and analyze information from all the taxes levies and the whole work process of taxation. An effective organizational structure has been adopted to nurture future leaders of Chinese tax administration. As a part of the effort to motivate the workforce and improve organizational efficiency, a cross-the-board performance evaluation framework has been incorporated. In addition, several local tax administrations have been selected to pilot the “E-Personnel” program.
Implementation of blueprint
The Blueprint for Deepening Reform of Tax Collection and Administrative Systems of State and Local Tax Administrations” has laid out six key tasks including clarifying responsibilities for State and LTAs, encouraging innovative taxpayer service, transforming administrative approaches, participating in international collaboration, optimizing organizational structure, and exploring collaboration possibilities between State and LTAs and beyond.
In a bid to provide taxpayer service in a highly integrated manner, to enforce law with coordinated actions, to synthesize information in a sharing spirit, respective resources and advantages of State tax and LTAs will be leveraged. The blueprint focuses on maintaining the balance between lower administrative and compliance cost and higher efficiency of tax administration. In the meantime, higher voluntary taxpayer compliance and stronger taxpayer satisfaction can be expected. The goal is to establish a modernized tax administration system that continuously evolve to build governance capacity and therefore will fit better in the national governance system as the foundation, pillar and safeguard.
The indirect tax system in China now is undergoing a significant reform with the objective of unifying the Business Tax and the Value Added Tax. This is another major reform to the VAT system since the first launch of the indirect tax in 1994 and the transformation from manufacture-based VAT to consumption-based VAT in 2009. As part of the wider push to deepen the country’s fiscal and tax reforms, the VAT reform is expected to sustain economic growth in the long run.
Starting from 2012, the application of VAT has been gradually expanded to industries including transportation, postal service and telecommunication as well as seven modern service sectors including research and development and technical services, information technology services, cultural and creative services, logistics auxiliary service, tangible movable assets leasing services, authentication and consultation services, and broadcasting, film and television services. By the end of 2015, it is estimated that the reform has cut taxes by 641.2 billion yuan ($105.1 billion) and effectively reduced business costs for the taxpayers. The boost to the modern service sectors has in turn stimulated entrepreneurship and employment.
The final phase of the reform ushered in on May 1, 2016, has finally put all industries under a unified VAT regime by adding construction, real estate (with input taxes paid on the newly purchased property deductible), financial services and consumer services to its application scope. With that, the VAT has essentially taken the place of the BT in all the manufacturing and service sectors. This move was expected to slash taxes by over 500 billion yuan this year and reduce tax burden for all the industries involved.
Alongside advancing the VAT reform, Chinese tax administration plans to implement reforms on other taxes including resource tax and environmental protection tax in order to support the country’s sustainable development and promote its economic transformation.
‘Spring Breeze Initiative’
In February 2014, the “Spring Breeze Initiative” was launched to streamline the tax administration processes and to reduce compliance burdens. It has since become the new testimony to the quality taxpayer service delivered by the Chinese tax administration. Just in 2015, taxpayers have received tangible benefits from the more than 2,200 service measures rolled out under the initiative.
One of the most applauded measures was the collaboration between the tax administrations and the banks which has enabled banks to grant unsecured loans to small scale businesses with good tax payment history. The tax payment records turned out to be an important input for building a well-around social credit system.
Following the Plan for Deepening the Standardization Reform put forth by the State Council, the SAT has published standardized protocols in four aspects, namely: taxpayer service, tax collection and administration, export refund administration and cooperation between the State and LTA so that requests raised by taxpayers are to be answered in a consistent manner, tax officials are required to follow standardized approaches, taxpayer service is to be delivered in a uniform way and tax laws are to be enforced to a same standard.
After multiple upgrades, the Standard on Taxpayers Service released in October 2014 set up a high national benchmark for the taxpayer service provided while some areas has even exceeded the benchmark by large margin.
The Standard on Tax Collection and Administration was implemented in May 2015. After several revisions and improvements were made, it was able to prioritize risk management strategy, set up clear roles and responsibilities, streamline work processes and unify administrative approaches. The detailed instructions were designed to cover all tax matters processed by tax administrations at all levels.
The Standard on Administrating Export Refund/Exemption was put into force in February 2015 and underwent a remake in January 2016. It was able to ensure higher efficiency in export refund processing and thus contributing to the sustainable development in foreign trade.
The Standard on Cooperation between the State and the Local Tax Administrations took effect in July 2015. It clarified the responsibilities of the STA and LTAs in 32 cooperative tax matters.
Starting from January 2015, another 12 tax matters were included into the scope of collaboration. The seamless service delivery has made it possible for taxpayers to handle tax matters in one place without having to take separate trips to offices of the STA and LTAs. It is expected that the collaboration will be further explored now that the VAT reform is complete.
‘Internet plus Tax’ Action Plan
The SAT introduced the “Internet plus Tax” Action Plan in September 2015 with the vision to combine internet-related innovations with taxation. It has put forth 20 detailed action plans in five modules.
On the one hand, the action plan has been designed to provide well-thoughtout and easy-to-access taxpayer service in an efficient and effective manner. On the other hand, the action plan has made the tax administrations’ “data managers” who are not only able to make tax data into value-adding tool for taxation but also can provide valuable inputs for macroeconomic performance evaluation and national decision making. So far, the plan to establish “E-Tax Bureaus” has been carried out in full swing which has enabled taxpayers to handle certain tax matters remotely through web and mobile applications. The tax information system built around the “Third Stage of the Golden Tax Project” has been incorporated by 20 provinces and cities and expects a nation-wide adoption by the end of 2016. Its successful launch will support the unified tax administration system as well as ensure the data central processing, thus unleashing the potential of big tax-related data.
Upgraded VAT Invoice System
As of January 1, 2015, the upgraded VAT Invoice Processing System was put into use. The upgraded system has several notable features. First, it is designed to collect all the information printed on the VAT invoices. Second, the information will be uploaded to the database once the information is collected. Last, the taxpayer invoice issuance process is monitored remotely and the information recorded will be stored in the database.
By compiling data from various types of businesses operating in diverse industries and different regions, the system can effectively identify and prevent tax evasion and tax frauds related to tax invoice. Above all, it can help inform the macroeconomics decision making.
In 2014 when attending the ninth G20 Summit, Chinese President Xi Jinping, proposed that the world should enhance global cooperation in tax matters, crack down on international tax evasion and help developing countries and lowincome countries build tax administration capacity.
The proposal has set the Chinese tax administration into motion by taking active participation in the G20 international tax reform and ensuring the implementation of the outcomes of the reform.
As a part of G20 countries and a member of the Base Erosion and Profit Shifting bureau, China has been working with other countries on an equal footing in the development of the BEPS project. In February 2016, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters was signed and put into force in China. Meanwhile, China has developed cooperative relationship with 25 international and regional tax organizations such as the United Nations, the Organization for Economic Cooperation and Development, and the International Monetary Fund.
China has established bilateral cooperative relationship with 115 countries and regions by signing 104 tax treaties or agreements and 10 agreements on information exchange. In addition, working in the transforming international taxation landscape, China has established an inclusive framework that consists of three aspects of administration, service and audit to tackle cross-border tax avoidance and protect national interests.
The 13th Five-Year Plan (2016-20) is the decisive stage in finishing building a moderately prosperous society in all aspects. This important period of strategic opportunities is a critical time for the taxation in China as well. Aspiring to be pragmatic, innovative, open and tolerating, Chinese tax administration will not let this opportunity slide. A bright future lies ahead for taxation in China where taxation is the driving force in social and economic development as well as prominent player in global cooperation.
The author is commissioner of the State Administration of Taxation.