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Firms pay less taxes through VAT reform in China

China started nationwide tax reforms to use value added tax as a replacement for businesses tax in May. June 1 was the first day of declaration for the pilot program, and many firms saw their tax burdens significantly reduced.

Companies with expenditures for property rentals can enjoy having a large part of their taxes deducted under the new policy.

“They added some items of tax deduction, like real estate renting, property management and travel expenses. It’s estimated that we can deduct 2 million yuan of tax in one year,” said Xu Shuping, Wangfujing Department Store, Luoyang.

The hotel industry also benefited from the reforms.

“The daily consumption of water, gas and electricity, as well as washing products, and the purchase of other materials, all these can be deducted. So our tax is reduced by 1.6 to 1.8 percent from the past,” said Fang Zhuo, financial manager of Nanning Hotel.

For real estate and construction companies, their taxes have changed from 5 and 3 percent taken as business taxes to 11 percent of VAT. The tax might increase in the initial stage. But in the long run, firms believe there is still space for tax reduction.

“Viewed from the long term, the deduction of VAT will be more regulated, fixed assets are also included in deduction items. Companies’ tax burdens will gradually decrease,” said Wang Changqing, Shandong Xinze Decoration Engineering Co Ltd.

The new tax policy will cause companies to increase their administration, and regulate the procedures in their operations.