Business tax in China to be replaced by VAT

Business tax in China will be replaced by value added tax (VAT) before May 2016, a concrete step in deepening fiscal and taxation reform, the country's finance minister said on Monday.

"The progress in the VAT reform last year was slower than having planned, efforts would be made to meet the May 1 deadline," Xinhua quoted Minister of Fiance Lou Jiwei as saying on the sidelines of the National People's Congress annual session.

"Starting from May 1, the replacement of business tax with VAT will be extended to construction, real estate, finance and consumer services to ensure that the tax burdens on all industries is reduced," Premier Li Keqiang said.

The great number of corporate tax payers, about 9.6 million, in the four mentioned industries caused slow progress last year, Lou said.

Business tax refers to a levy on the gross revenue of a business while VAT refers to a tax levied on the difference between a commodity's price before taxes and its cost of production.

A pilot scheme on business tax-to-VAT was initiated in 2012.

From 2012 to the first half of 2015, the measure has resulted in tax savings of over 484.8 billion yuan ($75 billion), accounting for 0.2 percent of Gross Domestic Product in the period, according to China International Capital Corp. Ltd., a joint venture investment bank.

Lou encouraged businesses to make good use of the money saved from the VAT reform, especially by channelling it into higher efficient investment, to promote industrial upgrades, which satisfies the purpose of the ongoing supply-side structural reform.

"We may assure that VAT replacement means lower tax burdens for an industry as a whole but not necessarily means that any company in an industry would see lower taxes," Lou said.

Lou also said that his ministry was working with relevant agencies on property taxation and proposals on individual income tax reform.

However, he advised people not to hold their expectation too high as the reform will be in "a complicated process".