CHINA has replaced all business tax with value-added tax after yesterday extending the policy to cover the construction, real estate, finance and consumer services sectors.
They were the last four sectors still taxed based on their revenue.
VAT is a tax levied on the difference between a commodity’s price before taxes and its production cost. Revenue tax is a levy on gross revenue.
The expansion of the VAT scheme is expected to ease tax burdens by more than 500 billion yuan (US$77.2 billion) this year.
China’s service sector is increasingly picking up the slack of manufacturing as the world’s second-largest economy is shifting towards a more sustainable growth driven chiefly by consumer demand.
Expanding VAT to more service sectors is also part of the supply-side structural reforms authorities have promised since last year to tackle structural imbalances in the economy.
“We now have to pay 11 percent VAT compared with 5.5 percent business tax,” said a treasurer with a construction firm in the northern city Tianjin. “It appears the tax rate has increased, but the base on which tax is collected has shrunk so our tax burden is reduced.”
The VAT was introduced in 2012 as a pilot program in Shanghai, and covered only transport, IT and logistics. It was later rolled out nationwide and to other businesses.
“This is a historic moment,” Wang Jun, director of the State Administration of Taxation, said yesterday.
As of 12:05am, 1,598 VAT invoices had been issued to 1,386 taxpayers across the country, the agency said.
In Tianjin, a man surnamed Qian received his invoice in the early hours of yesterday for the sale of an apartment valued at 400,000 yuan. He paid 19,000 yuan in VAT, with the new arrangement saving him about 1,800 yuan.
The reform has reduced the tax burdens of individuals and companies by 640 billion yuan over the past four years, benefiting 5.9 million households, Wang said.
Easing burdens in the service industry will facilitate industrial restructuring, he said, adding that a unified taxation system will help foster a fairer environment for businesses.
The reform will also help stimulating entrepreneurship and supporting private enterprises and small firms, which play a key role in job creation, he said.
