China Considers Plans To Reform VAT System

by Mary Swire, Tax-news.com, Hong Kong

18 April 2001

The deputy director of China's State Administration of Taxation, Xu Shanda, has told the Securities Times that China's value added tax and income tax system has become a burden for corporations and should be reformed. If approved by the State's Council, the Administration of Taxation plans to adjust taxes on cigarettes, alcoholic beverages and some business taxes in the entertainment industry.

Just last week we reported that the Ministry of Finance had indicated that it may scrap the initial five year preferential tax-exemption periods for some foreign-invested and foreign financial companies' sales from the country's special economic zones. Furthermore, in response to complaints from China's financial institutions that the state gives an unfair advantage to its foreign rivals in the form of concessional tax rates, the Chinese Finance Ministry announced plans to reduce the business tax for domestic banks and insurance firms by 1 percentage point each year from its current rate of 8 per cent to reach 5 per cent in 2003 in a bid to help them increase their profits.

The Ministry of Finance has also decided to adjust its sales tax policy in order to create a more level playing field amongst foreign and local companies. The move is in line with China's principle of "taxation fairness" and can be attributed in part to the country's impending entry to the World Trade Organisation.

Recommended