We talk about China's economic reforms -- but often on the macro-level. This week -- we're going to dive-in to look at economic transitions at regional and corporate levels. Today, we begin with corprate tax.
China has farewelled to business tax and embraced VAT tax for companies in May.
Officials claim that the reform will have cut 500 billion yuan of tax for companies by the end of next April since the first of May this year.
But Beijing wants it to be more than just a tax cut.
A VAT is a consumption tax, which means the tax really falls on the consumer or buyer of a commodity or service rather than the manufacturer or service provider.
For the buyer or consumer, it works as a tax on the purchase price of a good or service just as a sales tax.
Analysts say, for the manufacturer or service provider, a VAT is almost like an incentive program.
The VAT system creates a sophisticated credit procedure that does not exist in the Busniess Tax system.
To meet the VAT scheme standard, we have established a new tax management unit in our company. We have started a series of internal managerial reforms around the new tax scheme.
Not everyone wins out from the new regime. Local governments are likely to lose 125 billion yuan to 250 billion yuan next year, according to economists.
CreditSuisse meanwhile says consumer services, property sector players and auto dealers and makers set to benefit, while construction companies may be hit because a high proportion of costs aren’t deductible.
The VAT scheme may lead to higher transaction costs in financial markets for banks. The tax will add to the costs of repurchase transactions, a common form of interbank financing.
The biggest winners in this game are small businesses with less than 500,000 yuan in annual sales. Their tax rate will drop to 3 percent from 5 percent. Big companies with multiple units also will get a break as many internal transactions will become deductible.
But the biggest concern remains on how fast Chinese companies' immature corporate governance will catch up with such a sophisticated tax system to really give the economy a facelift.
