Firms May Save an Added USD77 Billion This Year as VAT Supplants Enterprise Tax in 27 Provinces
Yicai Global
/SOURCE : Yicai
Firms May Save an Added USD77 Billion This Year as VAT Supplants Enterprise Tax in 27 Provinces

(Yicai Global) Feb. 27-- An important economic initiative of US President Donald Trump is his plan to cut enterprise taxes. China has also initiated its own project toward this end. Statistics from China's local governments show that taxes have fallen USD77 billion (CNY522 billion) since 27 provinces and municipalities instituted a reform last year to replace the company tax with a value-added tax. These two taxes are the main ones levied in China. To reduce the burden on enterprises, since 2011, the country has implemented a series of pilot reforms to replace its corporate tax with a value-added tax, and has comprehensively implemented this tax since May 1, 2016, an event that may signal the end of the enterprise tax.

Per statistics, 27 provinces (autonomous regions and central municipalities) -- including Shanghai, Guangdong and Beijing -- sliced off CNY522.5 billion taxes last year. Shanghai shed CNY84 billion to rank first, followed by Guangdong and Beijing, which snipped off more than CNY60 billion. This reform, whose estimated scale will top CNY700 billion, will be the priority tax reduction this year.

The reform replacing the enterprise tax with VAT has excelled in tax reduction and this drop meets or exceeds official expectations. State Administration of Taxation statistics show that the service, financial, real estate and architectural industries enjoyed tax reductions of 30 percent, 15 percent, 8 percent and 4 percent, respectively, Professor Hu Yijian from Shanghai University of Finance and Economics told Yicai Global.

Many large enterprises have greatly benefited from this initiative. "The reform has brought us a tax reduction package of more than CNY1 billion for the company," Dong Mingzhu, board chairman of Zhuhai, Guangdong province-based Gree Electric Appliances Inc. [SHE:000651], a behemoth of China's home appliances industry, said yesterday,

Catering titan McDonald's (China) Corp. also saw its tax rate decrease from 4.9 percent to 0.6 percent at last year's end, after the overall implementation of the reform, with the amount reaching CNY450 million. This has contributed more than CNY800 million to net company profit.

However, the special VAT deduction mechanism and factors such as investment cycles, capital constitution, management conditions and profitability have caused 160,000 taxpayers to now pay more taxes than before. In this connection, both the PRC State Administration of Taxation and Ministry of Finance said the tax reduction system will be constantly improved.

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