The State Council executive meeting on March 18 decided to carry out a pilot program that replaces business tax with value-added tax (VAT) in an all round way. The scope of this work will be extended to the construction, real estate, financial, and consumer service industries; a big step for China’s tax reduction plan.
It is a pilot reform project promoted by Premier Li Keqiang in person. He went to Shanghai in 2012 to encourage the pilot program of replacing business tax with VAT in the transportation industry and the modern service industry. Since he took office, the Premier attached great importance to this program, which several times made its way to State Council meetings.
After four years of experiences, the pilot program has played a big role for China’s economic structural reform. By the end of 2015, the number of tax payers in this program was about 5.92 million, with tax reduction amounting to 641.2 billion yuan. Besides, the service industry accounted for 50.5 percent of the country’s gross domestic product (GDP) in 2015, up from 45.5 percent of GDP in 2012. The amount of tax is expected to be reduced by more than 500 billion yuan in 2016.
The important measure of replacing business tax with VAT is to further deepen the fiscal and taxation reform, and carry out the proactive fiscal policy. Premier Li said the tax reduction itself is a proactive fiscal policy. The reform of replacing business tax with VAT will be extended to lots of areas.
The Premier’s concerns are also revealed in the reform of replacing business tax with VAT, since this reform is to boost employment, promote mass entrepreneurship and innovation, to develop the modernization of urban areas as well as social fairness.
Premier Li put much emphasis on this reform program. He said in the 2016 government work report that tax will be reduced in all sectors, which was reiterated in the State Council executive meeting on March 18.