VAT tax expands nationwide

A pilot program of value-added tax (VAT) for certain sectors including transportation was expanded nationwide Thursday in a bid to ease the tax burden on enterprises.

Shanghai was the first city to pilot the tax reform at the beginning of last year, replacing business tax with VAT in the transportation and modern service industries. Since then the program has gradually been expanded and on Thursday it reached all cities in China, according to an article published by the Ministry of Finance (MOF) on its website.

In addition to the transportation sector, more modern services industries such as broadcasting and film are also involved in this pilot program, with the new tax rate at 6 percent, according to the MOF.

"It is an important step to ease enterprises' tax burden and reform the country's tax system," Zheng Xinye, a professor of taxation at the Renmin University of China, told the Global Times Thursday.

The program is designed to resolve the issue of duplicate taxes in some industries and to reduce their overall tax burden, but over the past two years it has encountered some difficulties such as an increased tax burden on some transportation enterprises.

Du Guohua, general manager of Shanghai Huamin Storage and Transportation Co, told the Global Times in March 2012 that the company's vehicles have to use some gas stations located outside Shanghai that do not provide VAT receipts, so the company is unable to make the same deductions it could if the stations were inside the pilot area.

But Du told the Global Times Thursday that "it will be more convenient when the trial program is expanded across China to more business sectors, so that more duplicate taxes can be deducted."

"As a whole, our tax burden will be eased," Du said.

Minister of Finance Lou Jiwei said in an article published on the ministry's website Thursday that the ministry has found that the limited number of cities covered by the pilot program was one of the major causes of a rise in the tax burden for a few enterprises in the short term.

"This problem could be well resolved with the expansion of the pilot program," Lou said.

Zheng said one of the obstacles to pushing forward the program nationwide is conflicts of interest between the central government and local governments.

In China, around 75 percent of VAT income goes to the central government, while local governments collect nearly all the business tax.

Lou said "all the VAT income will be given to the local governments during the pilot period," without clarifying whether the VAT income will go to the central government after the pilot period.

Zheng said the VAT income should eventually be submitted to the central government, as "the central government could dispatch the fiscal income to sectors and areas that need fiscal funds more urgently."