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March 28, 2018, the current Premier of the State Council of the People's Republic of China Mr. Li Keqiang announced that China will cut value-added tax (VAT) rates as part of a tax reduction package amounting to 400 billion yuan (about 63 billion U.S. dollars) this year at a State Council executive meeting. China's tax regime reform will be mainly divided into two parts and implemented from May 1, 2018.


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Image:www.gov.cn



1. New VAT Rate

The tax rate will be lowered from 17% to 16% for manufacturing, and from 11% to 10% for transportation, construction, basic telecommunication services and farm produce.

"The VAT reform has helped to reduce the overall corporate tax burden, and improve the tax regime. The reform has proven to be conducive to the transformation and upgrading of the economy, unifying the tax structure and making taxation fairer," Li said.


This round of tax cuts will apply to all manufacturing companies. All businesses registered in China, joint ventures or wholly foreign-owned companies, will be treated fairly, according to the premier.


The VAT reform was first piloted in Shanghai before it was rolled out nationwide. It has delivered a total tax cut of 2.1 trillion yuan over the past five years.


The services sector has expanded significantly as a result. Its added value rose to 51.6 percent of GDP in 2017, according to the National Bureau of Statistics.


2. Unify The Standard for Small-scale Taxpayers

The reform has also boosted entrepreneurship, innovation and the development of new industries and new forms of business. Micro and small firms have been the biggest beneficiaries in this process.


The premier said in his government work report earlier this month that efforts will be made to further lighten the tax burden on businesses. The government will reform and improve VAT, consolidate the three tax brackets into two and adjust tax rates, prioritize lowering rates in manufacturing and transportation, and raise the threshold for the annual sales volume for small-scale taxpayers.

The meeting also decided to unify the standard for small-scale taxpayers, as it raises the threshold of taxable annual sales volume for industrial and commercial enterprises from 500,000 yuan and 800,000 yuan, to 5 million yuan.Enterprises registered as general taxpayers will be allowed to switch their status to small-scale taxpayers within a given time.


How does the tax reform benefit you?


Currently, there are two kinds of VAT rates: tax rates and levy rates. 

  • For small-scale taxpayers

VAT levy rate of 3% is applicable. 

  • For the general taxpayer

VAT tax rates may vary from 17%, 13%, 11%, 6% or even 0%, depending on the nature of the goods or services involved. The VAT levy rate for general taxpayers is 3% or 5%.


The new tax regime reform will allow general taxpayers to switch their status to small-scale taxpayers within a given time, to be applicable to 3% VAT rate. And the general taxpayer will benefit a lower tax rate.

 

Premier of PRC Mr. Li Keqiang has proposed an 800 billion tax reduction plan on both corporate tax and individual tax in mid-March, we will see the next 400 billion individual tax reduction coming soon!


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