Total VAT cut expected to be over 900b yuan

As China plans to implement a new round of reduction of value-added tax rates starting from April 1, experts predicted the total VAT cut will surpass 900 billion yuan ($134.03 billion) this year, Shanghai Securities News reported.

According to this year's Government Work Report, the VAT rate for the manufacturing sector will be cut by three percentage points to 13 percent. For construction and related sectors, the VAT rate will be reduced by one percentage point to 9 percent.

VAT, a major type of corporate tax derived from sales of goods and services, is China's largest tax category, also one of important sources of tax revenue. Last year, China's VAT revenue totaled 6.15 trillion yuan, accounting for nearly 40 percent of the total.

If VAT rate is cut by one percentage point, it could reduce tax burden of enterprises of 41 million yuan, said Lu Tao, a financial official from Chinese machinery manufacturer Sany Corp.

China plans to reduce the tax burden and social insurance contributions of enterprises by nearly 2 trillion yuan this year, according to the report delivered on March 5. Meanwhile, the country has set this year's GDP growth target at 6 to 6.5 percent.

Assuming the growth of VAT synchronizes with that of GDP and given the median of GDP growth 6.25 percent, a total reduction of more than 900 billion yuan is expected to be achieved, Li Xuhong, a professor of the Beijing National Accounting Institute, told the newspaper.

On May 1, 2018, the VAT rate was lowered from 17 percent to 16 percent for manufacturing and some other industries, and from 11 percent to 10 percent for transportation, construction, basic telecommunication services and farm produce. This round of reduction of VAT rates has made the real economy such as manufacturing and construction industry benefit most.

As April 1 draws near, some automakers have announced plans to cut the prices of their models sold in China. For example, Jaguar Land Rover announced price cuts on Friday, with the prices of selected Range Rover models slashed by 85,000 yuan.

Research institutes predicted the new round of VAT reform will benefit several sectors. A researcher from TF Securities said the reduction of VAT rates will have positive influence on machinery equipment and chemical industry.

The sectors with low profit margin will have more obvious upside potential, another researcher from China Development Bank Securities added. For example, the profit growth of beer companies is expected to be 15-90 percent.