China tax regime: the winds of change blow
China’s tax regime is embarking on a journey of immense change with a raft of reforms, treaties and international tax regime cooperation.The path China’s tax regime has trodden and its direction of travel in the future was discussed today at the Taxand Global Conference 2014 hosted by Taxand China in Shanghai.
Frederic Donnedieu de Vabres, Chairman of Taxand, provides an overview of the session presented by Eddie Wang of Taxand China:
“China’s tax revenue demonstrates the rapid growth the country has experienced, with an annualised increase of 18.3% seen between 2005 - 2013, much higher than GDP growth rate. In 2013, the total tax revenue increased by 9.8% to RMB 11 trillion compared to 2012, with Value-added Tax (VAT), Enterprise Income Tax (EIT) and Business Tax (BT) collectively accounting for more than 62% of total tax revenue.
“Like many systems around the world, the tax regime in China is complex, although efforts have been made to simplify it over the years. The country has reformed the tax system to incorporate multifaceted national and global systems; improved tax frameworks with an emphasis on direct taxes; unified the domestic and foreign enterprise taxes; refined the tariff system in accordance with the World Trade Organisation rules and streamlined the system by abolishing five obsolete taxes since 2000, with 18 now under the current tax system.
“One of the most notable and important policy changes in 2012-2013 was the“B2V Reform”, unifying VAT, which is mainly levied on sales of products and processing activities, and BT, which is mainly levied on services and transfer of intangible assets. In 2013, tax reduction due to B2V Reform was around RMB 140 billion and is set to increase as the Reform extends to cover further industry sectors.
“Despite efforts to reform and update the system, a number of challenges remain which will require redress in the future. The imbalanced sharing of tax revenue between central and local government can result in high financial pressure at local government level. Tax revenue sharing ratios between state and local keep changing, with a trend emerging where more revenue is allocated to central government. There are also a number of issues associated with dealing with local tax officials, who have the power to apply discretion especially to unclear areas of tax regulations.
“There is no doubt immense change has occurred and will continue, as China becomes an ever more important player in the international tax regime. Working with the OECD and other institutions China will further absorb internationally accepted tax principles and rules into its national tax legislation. This adoption will undoubtedly benefit China as well as multinationals investing here, as communications with the Chinese tax authorities will become easier through a more common framework and common language."
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