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China Cuts VAT To Fuel Economic Growth

by Mary Swire,, Hong Kong

02 April 2018

China's State Council has announced a cut in value-added tax rates as part of a CNY400bn (USD63bn) tax reduction package to stimulate growth.

The VAT rate on manufacturing is to be cut by one percent to 16 percent, and the rate for transportation, construction, basic telecommunication services, and farm produce will also fall by one percent to 10 percent. The rate cuts apply equally to all businesses registered in China, including joint ventures and wholly foreign owned companies.

China's Premier, Li Keqiang, who chaired the State Council executive meeting at which the VAT rate cuts were agreed, said the tax reduction measures are an important element of the overall reform of the country's tax regime, remarking that VAT reform helps to reduce the overall corporate tax burden with flow-on benefits for the economy.

VAT reform was first piloted in Shanghai before being rolled out nationwide in May 2016. It is estimated to have delivered total tax cuts of CNY2.1tn in the past five years, and China's National Bureau of Statistics attributes an eight percent rise in the value of the services sector during 2017 to the reform, as well as an uptick in entrepreneurship, innovation, and the development of new industries and new forms of business.

Further reforms to lighten the tax burden on businesses are planned by China's State Council, including consolidating the three VAT brackets into two, adjusting tax rates, prioritizing lower rates for manufacturing and transportation, and raising the VAT registration threshold for small-scale taxpayers.

TAGS: tax | business | value added tax (VAT) | entrepreneurs | China | manufacturing | tax rates | construction | services | Work

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