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Sub-anchor: Value-added tax system for more sectors

CCTV.com

05-02-2016 03:38 BJT

How exactly will businesses and individuals benefit from this? CCTV’s Zhong Shi joins me in the studio with more details.

Q1. The VAT tax reform has been going on for a while now, but only in select sectors. Break down this latest step for us and tell us how much tax will be reduced.

This latest tax reform centers around expansions in two areas really. The first is the expansion of the value-added tax system to four more sectors,  namely construction, real estate, and financial and consumer services, 11 percent for construction and real estate; and six percent for financial and consumer services.

The second is to expand the scale of deductibles when calculating VAT, newly-acquired property assets will be counted as "deductibles", which will work in favor of enterprises, because it means a smaller value will be subject to the tax.

Reforms in VAT since 2012 have already reduced tax burdens for firms by more than 600 billion yuan. And through this latest move, the government hopes to cut taxes even more by more than half a trillion yuan this year alone. 

It's hoped that replacing the business tax with the value-added tax in more sectors will be a boost for Chinese enterprises, modernize the taxation system and inject vitality into an economy which saw its slowest growth in quarter of a century last year.

Q2. The core of the reform is of course to cut taxes. Give us an example of how that works.

Let me begin with a home sale case. For example, Beijing resident Mr. Zhang sells his apartment for 2 million yuan. He bought it second-hand for 1 million yuan less than two years ago. Because of the length of that rather brief ownership, the sale is subject to a 5% value added tax.

After May 1st, Mr. Zhang is supposed to pay 95,200 yuan in VAT. Before May 1st, he would’ve paid 100,000 in business tax. That’s a savings of 4,800 yuan in that one tax alone.

To another case, let’s say a restaurant rakes in 3 million yuan a month in sales and spends half a million yuan a month on ingredients. Before May 1st, the 5% business tax means 150,000 yuan. After May 1st, the 6% value added tax means 97,200 yuan. That’s a sizeable savings of over 35%.

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