Minister of Finance Xiao Jie responded to several public concerns on replacing business tax with value-added tax and answered questions regarding tax reduction, cultivation of new growth engines, improving the taxation system and tax legislation.
The State Council, China’s Cabinet, implemented the replacement of business tax for certain industries on May 1, and required tax reductions for all industries.
According to Xiao, who became Finance Minister in November, the total tax reduction from January to November last year had reached 469.9 billion yuan ($67.6 billion).
Tax reductions due to the reform mainly concentrates on three major areas: the four new pilot industries that replaced business tax with the value-added tax after May 1, namely architecture, real estate, finance and living service industries; the three major pilot industries that had implemented the value-added tax reform before May 1, namely transportation, telecommunication and modern service industries; as well as the manufacturing industry that had implemented the value-added tax since 1994.
Xiao said the tax cuts in the above industries were based on the reporting of enterprises, adding that the value-added tax reform has not only reduced the enterprises’ tax burden, but also played a significant role in cultivating new engines of growth.
The value-added tax reform promotes division of labor, prolongs industry chains, and cultivates new technologies, industries as well as business models. According to Xiao, from May 2016 to November 2016, there were 580,000 new business startups in the four new pilot industries in which the reform has been carried out.
The reform also promotes transformation and upgrading of the manufacturing industry. According to the National Bureau of Statistics, the annual year-on-year growth in total profits of major industrial enterprises nationwide increased from 6.4 percent in May to 9.4 percent in November.
Moreover, Xiao said, the value-added tax reform creates a sound taxation environment for fair competition, which is conducive to promoting economic growth.
Xiao said that 1.5 percent of enterprises had complained about rising tax burdens after the reform. Xiao explained that for some enterprises, the tax increases could be a periodical and cyclical phenomenon; the situation will change as their operations improve amid economic recovery; for others, it could involve a lack of knowledge of the new reform as they may have failed to deduct items that are eligible under the new tax rules.
Xiao said the completion of the work for replacing business tax with value-added tax marks a significant step forward in the implementation of the value-added tax reform, which had put an end to the business tax that had in place in China for 66 years.
Xiao said in the next stage, the authorities will completely review the pilot programs of value-added tax reform and further improve the tax system.