Most firms to gain from tax reform but subsidies on offer
By Feng Jianmin |
December 31, 2011, Saturday
|
Print Edition
Print Edition
THE majority of Shanghai's service companies participating in a value-added tax reform starting tomorrow will benefit from lower taxes, and businesses that may pay a higher tax under the revamp will get subsidies from the government, local tax officials said yesterday.
About 120,000 Shanghai-registered service companies will switch from paying a business tax to VAT (value-added tax) next year, and 85,000 of them are small taxpayers whose annual revenue is below 5 million yuan (US$793,650), the Shanghai Taxation Bureau told a press conference.
The business tax ranges from 3 to 20 percent of a company's total revenue regardless of its operating cost while the VAT allows companies to deduct some taxes by claiming "input VAT credit" on expenses for machinery, fuel, other goods and services that are subject to VAT.
Starting from tomorrow, transport businesses, including airlines and shipping companies, will pay an 11 percent VAT. Companies engaged in technology development, IT, logistics support, and consulting services will be subject to VAT of 6 percent, according to a new rule made by the State Council, or China's Cabinet, in November.
Real estate agencies will pay a 17 percent VAT while smaller service companies will be taxed 3 percent.
The bureau expects a "substantial drop" in tax revenue as the new plan aims to streamline the tax system and relieve the burden of many service companies, officials said.
To soothe worries that some companies will pay a bigger tax after the reform, officials said the municipal government will team up with district governments to offer subsidies.
"The replacement (with VAT) can reduce the impact of repeated taxation and cut the overall tax burden of the service sector," said Gu Ju, director of the bureau. "It is possible that a small number of companies may face a heavier tax in the reform because of their different structure and maturity ..., and we will handle it properly."
In the first quarter next year, companies must report the different amounts of tax they pay before and after the reform, and the authorities will grant subsidies accordingly. But officials did not provide further details.
Structural tax cut
The reform comes amid China's ambition for a "structural tax cut," a highlight of its Five-Year Plan for 2011-2015.
It aims to boost domestic economic momentum to ward off external shrinking demand amid a sluggish global economy, an annual high-level Central Economic Conference concluded earlier this month.
"The reform is a critical measure to encourage industrial reform ... and it will boost the competitiveness of Shanghai," said Jiang Zhuoqing, deputy secretary general of the city government and head of the city's treasury department.
He added that the reform will expand to other industries in Shanghai in the following years, and the VAT will eventually replace the business tax as it is a more advanced and transparent system.
The pilot program has been widely praised as a step forward toward improving the opaque and sometimes onerous tax structure in China, which is viewed by many foreign business leaders as an impairment to Shanghai's competitiveness with Hong Kong, Singapore and other developed Asian cities. "The expansion of the VAT is a first step toward removing duplicate taxation on goods and services," Tom Byrne, a senior vice president of Moody's Investors Service Singapore, said.
About 120,000 Shanghai-registered service companies will switch from paying a business tax to VAT (value-added tax) next year, and 85,000 of them are small taxpayers whose annual revenue is below 5 million yuan (US$793,650), the Shanghai Taxation Bureau told a press conference.
The business tax ranges from 3 to 20 percent of a company's total revenue regardless of its operating cost while the VAT allows companies to deduct some taxes by claiming "input VAT credit" on expenses for machinery, fuel, other goods and services that are subject to VAT.
Starting from tomorrow, transport businesses, including airlines and shipping companies, will pay an 11 percent VAT. Companies engaged in technology development, IT, logistics support, and consulting services will be subject to VAT of 6 percent, according to a new rule made by the State Council, or China's Cabinet, in November.
Real estate agencies will pay a 17 percent VAT while smaller service companies will be taxed 3 percent.
The bureau expects a "substantial drop" in tax revenue as the new plan aims to streamline the tax system and relieve the burden of many service companies, officials said.
To soothe worries that some companies will pay a bigger tax after the reform, officials said the municipal government will team up with district governments to offer subsidies.
"The replacement (with VAT) can reduce the impact of repeated taxation and cut the overall tax burden of the service sector," said Gu Ju, director of the bureau. "It is possible that a small number of companies may face a heavier tax in the reform because of their different structure and maturity ..., and we will handle it properly."
In the first quarter next year, companies must report the different amounts of tax they pay before and after the reform, and the authorities will grant subsidies accordingly. But officials did not provide further details.
Structural tax cut
The reform comes amid China's ambition for a "structural tax cut," a highlight of its Five-Year Plan for 2011-2015.
It aims to boost domestic economic momentum to ward off external shrinking demand amid a sluggish global economy, an annual high-level Central Economic Conference concluded earlier this month.
"The reform is a critical measure to encourage industrial reform ... and it will boost the competitiveness of Shanghai," said Jiang Zhuoqing, deputy secretary general of the city government and head of the city's treasury department.
He added that the reform will expand to other industries in Shanghai in the following years, and the VAT will eventually replace the business tax as it is a more advanced and transparent system.
The pilot program has been widely praised as a step forward toward improving the opaque and sometimes onerous tax structure in China, which is viewed by many foreign business leaders as an impairment to Shanghai's competitiveness with Hong Kong, Singapore and other developed Asian cities. "The expansion of the VAT is a first step toward removing duplicate taxation on goods and services," Tom Byrne, a senior vice president of Moody's Investors Service Singapore, said.
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