Transcript Turnover Tax System of China - IMF -

Tax System and
Tax Incentive
Lin Xuebing
Ministry of Finance
IMF Tax Policy Seminar for Asian and Pacific
Countries on Tax Incentives
Tokyo, June 9th 2009
Financed by JSA
Enacting Tax Laws & Regulations

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National People’s Congress (the highest legislative body in China)
——enacts tax laws dealing with broad principles of fundamental
taxation matters.
The State Council (executive body)
—— is empowered to issue tax regulations and provisions , as well as
approve tax incentive policy
The Ministry of Finance(MOF)
—— is responsible to propose national taxation strategy, formulate and
explain tax laws, regulations and policies of domestic taxes, tariffs and
taxes on imports, make plans on the reform of taxation policy etc.
Administration of Tax in China
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State Administration of Taxation(SAT)
──In charge of the general administration of domestic
tax laws.
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Customs
──In charge of the general administration & collection
of customs duties and taxes concerning imports &
exports.
How many Taxes in China?
There are 19 taxes totally in China
Turnover Taxes
(6)
VAT
Business Tax
Consumption
Tax
Custom Duty
Vehicle
Purchase Tax
Tobacco
Purchase Tax
Income
Taxes
(2)
Enterprise
Income
Tax
Individual
Income
Tax
Property Taxes
(4)
Resource
Taxes (1)
Housing Tax
Nature
Vehicle Tax
Resource Tax
Vessel Tonnage
Tax
Urban Land
Using Tax
Behavior Taxes (6)
Land Appreciation Tax
Stamp Tax
Contract Tax
Cultivated Land
Occupation Tax
Urban Maintenance &
Construction Tax
Fixed Assets
Investment
Adjustment Tax
Revenue Structure
Annual Tax Revenue and Growth
Tax Revenue (Percent of GDP)
Tax Incentive—A Tool Against
Economic Fluctuation
 1994-1997
against inflation to reach
economy softlanding
 introducing
land appreciation tax and fixed
assets investment adjustment tax
 eliminate
rate
tax incentive; lower export rebate
Tax Incentive—A Tool Against
Economic Fluctuation
 1998
to 2003 (proactive fiscal policy)
increase the export rebate rate(15.51%,108billion)
 lower the tariff rate(reduced by 61.92% since 1992)
 Suspend the fixed assets investment adjustment
tax
 investment credit
 tax incentive on software and integrate circuit
industry
 tax policy for western region development

Tax Incentive—A Tool Against
Economic Fluctuation
2003-2008(stable fiscal policy)
 Tax policy keep relatively stable. Tax incentive is
given to support the high-tech, energy-saving and
enviroment protection, agriculture industry, etc.
 2008 to present (proactive fiscal policy)
 Tax incentive is given to stimulate the economy:
new income tax law was implemented, VAT
transformation, increase export rebate rate ,
increase the threshold of IIT, reduce the tax
burden on real estate exchange, etc.
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Current Tax Reform and Tax
Incentive Adjustment in China
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VAT reform: all individuals and units which sell taxable
goods, provide processing or repair services in China or
which import goods into the China are liable to VAT.
Starting from 2009.Jan.1, VAT transferred from production
type to consumption type, which means the input tax on
newly-purchased fixed assets can be credited from output
tax;
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Tax incentive adjustment: eliminate VAT exemption on
imported fixed assets; reduced collection rate from 4% or
6% to 3% for small-scale VAT taxpayer.
Current Tax Reform and Tax
Incentive Adjustment in China
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Enterprise Income tax:
Before Jan.1,2008
 FIE subjected to ：
Foreign investment enterprise and foreign enterprise income tax
law（1991～2007）: FIE , especially established in Special
economic zones and development zones enjoyed generous tax
incentive like reduced tax rate 15%, exemption for the first two
years and at the rate by half for the next three years,
reinvestment tax refund; more generous tax deduction, etc.
 Domestic enterprise subjected to ：
Enterprise income tax provisional regulation（1994～2007）: the
major tax incentive is focus on the high-tech industry; newlyestablished enterprise; resource utilization and some
Autonomous regions;
The major features: location based tax incentive; more generous
tax incentive to be attractive to FIE.
Current Tax Reform and Tax
Incentive Adjustment in China
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Enterprise Income tax:
after Jan.1,2008:
New enterprise income tax law and the implementation
rule have come into effect from Jan.1st , 2008.
The importance of reforming EIT in China:
•a system innovation
•a more favorable, fair tax environment for the
development of various enterprises, and benefit
cross-border investment and trade
•follow the international tax reform with main themes:
“low tax rate, wide tax base, tax neutrality, stringent
administration
Current Tax Reform and Tax
Incentive Adjustment in China
 Tax incentive policy:
features: transition from regional-base principal to “predominantly industryoriented, limited geography-based principal; more “green”, and unified tax
incentives.
focuses on various aspects including:
1.promoting technology innovation and scientific upgrade: R&D additional
deduction; lower tax rate for high-tech enterprise; tax exemption and reduction
for certain technology transfer; investment credit for venture capital; etc.
2.encouraging infrastructure construction: three years tax exemption and three
yeas reduction for harbor, airport, railway, road, communication, electricity etc.
3.encouraging agriculture and environment protection, energy conservation,
production safety: three years exemption and three years tax reduction by half
for qualified program; investment credit for special equipment purchase for
environmental protection and energy conservation, etc;
4. balancing regional development, promoting public welfare undertaking and
taking care of social vulnerable group.
Remind: design of Tax
Incentive policy
The major function of tax is collecting revenue, tax
incentive policy couldn’t erose revenue base.
 Tax incentive is only one of factor to encourage
investment, protect enviroment, encourage
technical innovation.
 Tax incentive should be easily administrated,
oriented; should be balanced with fiscal
expenditure.
 Tax incentive policy should be traced and
evaluated, tailed to the economic change.
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Thanks
for your interest & patience！！