Beijing to expand tax reform trial

PUBLISHED : Friday, 27 July, 2012, 12:00am
UPDATED : Friday, 27 July, 2012, 12:00am


The mainland will expand a value-added tax (VAT) reform trial next month despite complaints about incomplete preparatory work that has caused businesses to end up paying more taxes in Shanghai.

The State Council said the trial conducted in Shanghai since the beginning of this year would be expanded to 10 more cities and provinces, including Beijing, Tianjin and Anhui, from August 1, Xinhua reported.

The reform was aimed at easing the tax burden on companies in the logistics and 'modern service' sectors, but the pilot scheme in Shanghai proved unsuccessful, with about two-thirds of business owners seeing increases in their tax liabilities.

Under the reform, logistics service providers and other service firms, such as those in the information technology sector, are required to pay taxes based on the value they add to their finished products, replacing the current sales tax on their total sales.

Invoiced costs are subtracted from sales and the difference is considered the value added.

But in the Shanghai trial run, the tax authorities dismissed as invalid many invoices that the companies obtained from their suppliers.

Tax authorities in Shanghai are now paying back companies 70 per cent of the extra tax they had to pay. Analysts said bureaucracy and differences between the central and local governments were the root cause of the failed trial run.

Under the present tax system, local governments can keep the entire sales tax revenue for themselves but have to share the VAT with the central government.

Beijing has yet to announce whether the local governments can keep all the VAT they collect when the sales tax is gone.

Xu Shanda, a former deputy director of the State Administration of Taxation, had earlier said it would take a long time before the reform could effectively ease companies' tax burdens.