Extending VAT reform can save $93b in 2016

Tax inspector inspects a car manufacturing company in Yangzhou city, Jiangsu province, Oct 20, 2015. [Photo/IC]

In 2016, the reform is expected to expand to the four remaining bulwarks: property, construction, finance, and consumer services. If achieved, analysts said, it would be a remarkable progress. Business tax derived from the four sectors accounted for over two thirds of total business tax revenue. If replaced by VAT, it is estimated to reduce 396.9 billion yuan of tax on enterprises in these sectors, according to a report by People's Daily. Adding VAT reform in other sectors, 613.1 billion yuan would be saved in 2016.

What's more, the reform in the four sectors would bring benefits to their downstream industries, because VAT levied in these sectors would make downstream businesses more easier to get invoices to get deductions, said Hu Yijian, a tax professor at Shanghai University of Finance and Economics.

Economists also argued that the VAT rate should be simplified to lower the tax. Currently there are five VAT rate: 17,13,11,6 and 3 percent. Businesses are subjected to different rate according to their nature of business. China International Capital Corp suggested the highest rate could be lowered to 15 percent for manufacturing. If that's the case, 300 billion yuan tax would be saved.

A top meeting in December has proposed various ways to lower business cost, including "lowering VAT rate for manufacturing sector". The meeting did not specify how the tax rate would be lowered.

Besides VAT reform, China in the last year has also implemented various measures to cut tax for small and micro firms. In August the State Council decided to further eased the threshold of eligible firms to enjoy a 50 percent reduction in their corporate income tax. It also extended the exemption of VAT and business tax for small businesses with less than 30,000 yuan in monthly sales.

These policies have saved small and micro firms nearly 100 billion yuan of tax. Tax cut on high-tech companies relieved another 140 billion yuan of tax, according to SAT.