Change afoot for China’s tax structure

15th March 2017

In a bid to boost its ailing economy, China has announced it is planning on further simplifying its tax structure. The government has long come under criticism for its unusually high tax burden and the pledge to move from a four-tier VAT regime to a three-tier system is an attempt to support a stabilising economy at a time of slow economic growth.

All change in China

China’s move to a three-tier VAT system forms part of the government’s fiscal and tax reform plan which has been phased in since 2012. Prior to this, VAT ran alongside the business tax (BT) which was a complex system at best. In the years since, companies have been included in the new tax regime sector by sector, the latest of which included construction, finance, lifestyle and real estate in May 2016.  Today all businesses in the country only pay VAT (based on a rate set by industry classification) – essentially eliminating BT from the tax system. Premier Li Keqiang told the National People’s Congress in Beijing earlier this month that the reforms led to a tax cut of 570 billion yuan (circa 68 billion pounds) in 2016.

And in a move to further cut the tax burden – by 350 billion yuan in 2017 – and provide tax incentives for small businesses, Li has announced that business will now face VAT rates based on three classification instead of the current four tier system.  It remains to be seen what impact these measures have on businesses operating in China, what is certain is that the system still remains complex and companies will need to be up-to-speed on the changes and what they mean for them.

Partner with a specialist

At a time when China’s domestic law is going through huge transformation, it can be challenging for agencies to not only keep abreast of the developments, but also – and crucially – understand what the impact will be on their operations.  Remaining compliant is paramount and those who have a presence in the country would be wise to seek out professional advice to ensure they are operating on the right side of the law.  Governments around the world are ramping up legislation to reclaim lost revenue and close in on tax evaders, if you are at all unsure of your status when placing contractors overseas then speak to a team of experts who can guide your through the process? Talk to us today.

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