China has expanded a pilot program to finally put
all industries under a unified value-added tax (VAT) regime as part of a wider
push to deepen the country's economic reform.
Experts have described it as the most significant
tax and fiscal reform in decades as it further improves the country's tax
structure and will sustain economic growth in the long run.
"The reform will reinforce the current performance
of the economy, allow the market to play a decisive role, and eventually sustain
momentum of its future development," said Rani Jarkas, chairman
of Hong Kong-headquartered financial services firm Cedrus
Investments.
Starting from May 1, the VAT replaced business tax
(BT) in the sectors of construction, real estate, financial services and
consumer services to avoid double taxation, a move expected to slash taxes by
over 500 billion yuan (76.9 billion U.S. dollars) in 2016 alone.
The latest extension came four years after the first
trial run of the services sector VAT reform in the financial hub of Shanghai.
With that, the VAT has essentially taken the place of the BT in all sectors.
The VAT taxes only the value added at each link in
the production chain. It is in line with international practices and more
efficient as it avoids the double taxation of the BT regime, which is based on
the gross revenue of a business, including the cost of input.
Premier Li Keqiang has urged solid efforts to
deliver the VAT reform and pledged lower taxes across the board.
It is expected to directly help the tertiary
industry, which makes up more than half of the Chinese economy and is critical
to China's economic transition. Traditional manufacturing businesses stand to
benefit too, as they enjoy more deductibles under the unified tax regime.
