Structural tax cuts to benefit more small businesses

16  January 2013

BEIJING- As China opened a new round of expansion of its taxation reform, more small enterprises will get benefited and valuable experience will be provided for future implementation across the country, analysts said.

Guangdong and Fujian, the two southern provinces that have been included in the country’s pilot program of replacing business tax with a value-added tax this month, will see tax cuts to tens of hundreds of thousands of local small-scale taxpayers.

China has implemented a raft of tax-cutting measures since the beginning of this year, including the tax-cutting trials that have been expanded to seven provincial regions and cities.

Shanghai piloted the program on Jan 1 this year in an effort to decrease the overall tax burden and boost the transportation and service sectors.

Home to southern China’s manufacturing hub Pearl River Delta, the Guangdong province has a huge service sector that generates 45 percent of the province’s total output.

Statistics showed that about 180,000 small-scale taxpayers in Guangdong will be involved in this round of trial.

The tax cuts will amount to about 10 billion yuan during trials, the local taxation bureau estimated.

In Shanghai, the tax cut has helped reduce tax burdens of more than 80,000 small-scale taxpayers, or businesses with annual sales up to five million yuan ($801,090).

The Fujian Province also vowed to subsidize the enterprises which have a de facto tax increase during transition to the new taxation, in a bid to help them better accommodate to the taxation adjustment.

East China’s Zhejiang province, which will initiate the trial program in December, is also planning on policy aid, said Luo Shilin, deputy head of the provincial Department of Finance. “It is great news for the small and mid-sized enterprises in the province,” Luo said.

The Zhejiang province estimated that 95 percent of its taxpayers taking part in the program will be taxed at lower or the same levels.

Analysts also said that current schemes exclude the construction and catering industries because the sectors, with a large number of SMEs, remain substandard in invoice practices and difficult to implement the VAT calculation.

The choice of the pilot sectors will become a key problem as the trial program gradually expands nationwide, said they said.

The post and telecommunications, railway transportation and construction sectors will be included in the trial program at an appropriate time, Chinese Vice-Premier Li Keqiang has said on a recent work meeting while urging more taxation reform to boost industrial upgrading.