The State Council executive meeting on March 18 announced move to replace business tax with value-added tax, making it China’s most difficult and complicated tax reform in the recent years.
According to the policy, the four pilot industries for the reform that involve nearly 10 million tax payers are: construction, real estate, finance and service.
The promotion of the reform is that it can solve the problem of repetitive taxation. It is estimated that over 500 billion yuan of tax can be reduced annually, which can relieve the burden for many enterprises. Meanwhile, immovable properties will be included in the tax deduction range, which can help to expand the investment of enterprises and increase their vitality.
There are also many challenges facing the overall promotion. First, the guaranteed benefit for local areas. Lou Jiwei, the Finance Minister, mentioned during the two sessions that transitional income distribution measures will be arranged to solve the problem of decreasing income in local areas.
Second is the time limitations. According to the government work report of 2016, all pilot areas should start running by May 1, 2016. Achieving the goal in less than two months is a difficult task. The people responsible in China’s finance sector and State Administration of Taxation said that related measures and procedures should soon be prepared to make the taxation department at different levels come together. Moreover, a joint work system will be established so that the file of tax payers can be handed over on time.