During the year, the State Council has made arrangements for cost reduction initiatives such as tax and charge reduction. Various government departments have also introduced multiple polices, and local plans for cost reduction is also launched intensively. Journalist of the Economic Information Daily found that 25 provinces have introduced specific plans for cost reduction. A series of measures will help enterprises cut costs of at least 700 billion yuan this year. The journalist learnt that the future cost reduction policy will still emphasize tax and charge reduction. More measures, including cutting the rate of value-added tax (VAT) of the manufacturing industry is in brewing.
Of all the measures that have already been introduced which aim at reduce costs of enterprises, tax and charge reduction provides the biggest support. The replacement of business tax by VAT fully rolled out from May 1 alone is expected to reduce 500 billion yuan tax. It is the biggest tax cut by the current government. While in terms of charge reduction, after the State Council lowered the rates of three social security insurances last year, it again reduced the deposit ratio of social security insurance and housing provident fund in stage this year. Preliminary calculation shows that such measures can light the burden on enterprise of over 100 billion yuan.
Other tax and charge reduction measures unveiled during the year include: abolish and standardize a series of government fund charge items from February 1, reducing an estimated burden of about 26 billion yuan for enterprises; expand the charge exemption scope of 18 administrative items from May 1; reduce electricity charge twice, easing the electricity expenses burden of about 47 billion yuan in total for industrial and commercial enterprises; significantly reduce the credit card charges from September 6.
In addition, the specific plans of each province also target at reducing high tax and charges. The supply-side structural reform cost reduction plan (2016-2018) introduced by Guangdong Province shows that the tax costs Guangdong aims to cut for enterprises reached more than 50 percent of the total burden alleviation target. Shandong introduced opinions on alleviating enterprises’ tax burden and reducing financial expenditure costs, which specially aimed at reducing tax. It is estimated that this could reduce tax burden of over 200 billion yuan for enterprises in Shandong.
In fact, the voice calling for further reduction of tax, especially VAT ratio for the manufacturing industry has been loud. The 2015 national enterprise burden survey evaluation report released by China Center for SME Cooperation Development& Promotion shows that surveyed enterprises have the strongest demand for the introduction of “tax reduction and exemption”, and nearly 80 percent enterprises have such an appeal.
“The key to ease tax and charge burden of enterprises depends on VAT,” Jiangzhen, assistant researcher with financial strategy institute of the Chinese Academy of Social Sciences, told the Economic Information Daily. Enterprises’ tax and charge burden, especially the turnover tax, hinders enterprises’ innovation and entrepreneurship, and is headwind to the realization of the 13th Five-year innovation-driven goal.
He pointed out that after the replacement of business tax by VAT, deepening VAT reform is a tougher task. International experience on VAT shows that many countries imposed tax rates ranges from 1 to 2 levels, which is reasonable. But currently China’s service industry and manufacturing industry adopt multi-level tax rates, and different industries varied. Therefore, to lower VAT rate, especially that of manufacturing industry, is no doubt a proper way to reduce enterprises’ tax burden.
“After replacing the business tax by VAT, the VAT will be classified into five levels, namely 17 percent, 13 percent, 11 percent, 6 percent and 0, plus 3 percent collecting rate. The tax rates are too complicated, which can easily result in impeded value-added tax deduction that led to new policy pressure and collection pressure,” said Li Quan, researcher with Chinese Academy of Fiscal Sciences. “Given there are too many levels for China’s VAT rates, we should continuously degenerate these tax rates. But the time required should take into full consideration of the operational time and condition of the VAT.”
Yang Zhiyong, researcher with financial strategy institute of the Chinese Academy of Social Sciences, also pointed out that reasonable VAT rate should contain just one level of basic tax rate. But to satisfy realistic demand, the VAT rate can still include a basic tax rate and a low tax rate, and determine a tax-free scope. Since the VAT rate of the Asia-Pacific is generally low, to determine the basic tax rate at around 10 percent and the low tax rate at around 5 percent is reasonable. The collection rate should also be set at one level of around 3 percent.
“The major contradiction of the Chinese economy at present is excessive low-end capacity and insufficient high-end capacity. The goal of macro-economic policy is to promote economic upgrading, especially industrial upgrading. But industrial upgrading is subject to technology advancement, equipment technique, advanced material, labor quality and labor skill, all of which require huge R&D investment, equipment renewal and training. If the policy formulation and operation deviate from the macro intention of cost reduction, or even drive enterprises to compress necessary expenditure for development to reach the effect of reducing current costs, it will only result in further enhancement of low-end capacity, running counter to the goal of industrial upgrading,” Huang Zhiling, chief economist with China Construction Bank, told the Economic Information Daily.
In Huang’s opinion, as a fundamental policy of the central government, “cost reduction” shall help enterprises cut unreasonable burdens from external, instead of rigidly require them to reduce necessary cost expenses. The core of government’s role in reducing enterprises’ costs lies in introducing combined measures to cut transaction costs resulting from the system, tax and charge burden, logistic burden and etc.
Translated by Adam
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