Launched on May 1st of last year, the replacement of the business tax with the VAT began in the construction, real estate, finance and consumer services sectors.
OPPO, a mobile electronic device manufacturer based in Guangdong, is one of those which has benefitted from the move.
OPPO executive Jin Leqin says the shift to the VAT has saved his company 55 million US dollars in taxes.
“The value-added tax deductions run down the entire chain of the mobile phone manufacturing sector, including raw materials, transportation, and fixed assets. The implementation of the VAT has cut the tax burden for our company significantly. This is why we didn’t hesitate when it came to increasing our investments in our company.”
Eric Goujon with PricewaterhouseCoopers says the creation of a Value-Added Tax provides companies more options when it comes to their business practices.
“For some companies involved in RND engineering the internal capabilities are very strong. We see also some companies looking at outsourcing with this objective to reduce their cost. Now they are not frightened by these additional business tax costs. So we see companies actually transforming their business, taking some internal function into service enterprise.”
The Organization for Economic Cooperation and Development, the OECD, is conducting a performance evaluation of countries which are reforming their tax policies, such as China.
Pascal Saint-Amans, director of the Center for Tax Policy and Administration with the OECD, says the creation of the VAT fits well with the Chinese government’s overall economic strategy.
“China is moving towards more service providing. The reform is properly implemented and it corresponds to the highest standards in the world. We commend the progress made by China in that reform.”
The creation of the VAT system has cost the Chinese government millions of yuan in tax revenues.
However, leading economists are suggesting the initial loss in tax revenues has already been made-up through increased economic activity and investment. – CRO
Special coverage on China's Two Party Sessions by The Daily Mail - People's Daily