VAT Reform Enters The Legislative Process

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According to our understanding, the current VAT reform has entered the legislative process, which is considered to be an imperative reform at the central level in the 12th Five-Year.

At the same time, VAT will be changed for many years, and multiple files will be set up.

Malpractice of business tax

The reform of VAT expansion is to include the scope of the current business tax collection in the scope of value-added tax, and then cancel the business tax.

At present, China's industrial and commercial enterprises impose value-added tax, and the service industry levying business tax.

The three main objects of business tax are service industry, real estate and intangible assets.

With the continuous development of the service industry, the drawbacks of the business tax system are highlighted.

"The biggest problem is duplication of taxes," said Yang Zhiyong, director of the Financial Research Office of the finance and Trade Institute of the Chinese Academy of social sciences.

Business tax is levied in full on the sales or turnover of an enterprise.

However, there are many links in the circulation of some service industries. There are so many intermediate links in finance, insurance, trust, financing and logistics. Every business tax is imposed on each link, resulting in too high tax burden on the service enterprises and also hindering the specialized division of labor.

For example, the logistics industry includes warehousing, pportation, packaging, distribution and so on, all of which are very specialized. The tax system of business tax stifle professional division, because every subdivision of an industry requires a tax.

In view of the above problems, from September 1, 2010 onwards, Shanghai took the lead in the pilot "business tax difference tax administration", and assessed the difference of business tax between eight categories.

For example, the method stipulates that enterprises engaged in advertising agency business shall take the total income minus the advertising expenses paid to other advertising agencies or media as the tax turnover.

Before this, the enterprise's expenditure is not deducted from the sales volume, and it is taxed in full.

The pilot covers industries such as pportation, construction, finance and insurance, post and telecommunications, and so on.

The two pformation

In 2009, there was a reform of VAT. The VAT was changed from production to consumption. The vat of machinery and equipment purchased by enterprises was deducted from the sales tax.

According to the national tax department, in 2009, the whole country cut taxes by 170 billion.

But in this reform, the real estate which is the main part of the fixed assets, such as workshop and workshop, is not deducted, which makes China's consumption value-added tax unworthy of name.

After VAT covers business tax, it means that real estate can be deducted from value-added tax.

The two pformation of VAT will be completed in the process of VAT covering business tax.

The value-added tax of the real estate such as workshop and workshop to expand production will be deducted.

Many enterprises predict that the rate of tax reduction is likely to exceed the deduction for machinery and equipment in the last value-added tax reform.

Another important significance of the expansion of value-added tax is to include intangible assets in order to remove a major obstacle to technological innovation and R & D of enterprises.

The tax paid by enterprises on R & D, brand, trademark and patent will be deducted.

Intangible assets are becoming more and more important in the competition of modern enterprises. The magic weapon for many large multinational corporations is intangible assets.

"Like Apple Corp, most of the production is in China, and its own enterprises only do R & D design. In the future, our policy is to encourage enterprises like apple."

A tax official said.

New tax rate on value added tax

After the expansion of value-added tax, how to set the tax rate has always been the focus of the fiscal and taxation departments.

The current business tax rate is mainly 5%, with a portion of 3%, and the 20%. value-added tax rate of 17% of the entertainment venues such as cabaret, and a small part of it is 13%, while the small taxpayer is 3%.

After the expansion, value added tax may be set up with multiple tax rates. In addition to maintaining the basic tax rate of 17%, a few tax rates should be set up below, corresponding to different industries.

"17% this basic tax rate is also likely to be adjusted and should be lowered."

One insider said.

According to the current train of thought, we should set up the value-added tax rate separately for the financial and insurance industry.

"The tax rate should be lower than the basic rate of VAT", and the service industry may need to adopt a simple expropriation method.

"Although the duplication of taxes has been eliminated, the service industry has suddenly sped to the value added tax rate, and many enterprises will not be able to afford it." therefore, taxpayers should first levy taxes on the service sector on a small scale.

A person familiar with the matter explained.

In the survey, the finance and taxation department found that the jewelry industry did not like to be included in the value-added tax. It was the terminal industry, and immediately entered consumption after processing.

A person familiar with the matter said that the reform of fiscal system must be carried out along with the reform of VAT expansion.

Now the sales tax is local tax, and it is the largest local tax.

Value added tax is a central local share tax, which is allocated at the ratio of central 75% and local 25%.

Once value-added tax is replaced by business tax, 3/4 of business tax will be turned over to the central government, and local taxes will be greatly affected.

Meanwhile, the central government will surely adjust the VAT between the central and local governments to ensure local vested interests, the people familiar with the matter said.