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VAT reform brings benefits to China’s macro economy

Updated: Jan 4,2017 4:22 PM     english.gov.cn/Economic Daily

Replacing the business tax with value-added tax (VAT), which helped reduce tax burdens on enterprises and industries, has brought many positive effects to China’s macro economy, according to Fan Yong, a professor at the School of Finance and Tax at Central University of Finance and Economics.

Under the reform, VAT covered all services and products, further cutting redundant taxation and reducing the tax burden on enterprises. The reform has boosted industries to be more specialized and professional, and improved productivity standards nationwide.

It helped optimize the industrial structure by including modern services, finance and productive services in the reform. Tax cuts in these industries promoted the industrial structure to shift focus to the tertiary industry. And as tax consumption of other industries on the service industry decreased with the implementation of VAT, more funds could be invested in the service sector, thus helping to optimize the industrial structure.

In addition, by investing more in tech consultation, research and branding, the product quality and competitiveness of enterprises will be further improved, and the inner growth engines and potential of the Chinese economy could be spurred.

As more service sectors have been involved in the tax collection, an improved tax rebate system for service industries would be established, and with the proportion of service sector being expanded in foreign trade, China’s foreign trade structure could also be improved.

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