Li Keqiang

Tax relief for more mainland companies

The VAT system will gradually be introduced throughout the nation, says Li Keqiang

PUBLISHED : Tuesday, 23 October, 2012, 12:00am
UPDATED : Tuesday, 23 October, 2012, 4:19am


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Vice-Premier Li Keqiang has pledged to expand a trial programme overhauling the tax system to more industries and regions, underlining Beijing's urgency in boosting businesses that are key to creating jobs.

The government aims to replace the business tax with a value-added tax for companies in more industries, including postal and telecommunications, railways and construction, Li said at a meeting last week and reported by Xinhua. He also reportedly vowed to expand the programme gradually to cover the whole nation.

While Li, expected to become the next premier after next month's leadership change, did not give a timetable for extending the reform, his comment reflects the government's determination to boost services and cut reliance on exports and investments over the next decade.

"The most important purpose of the reform is to significantly cut the tax burden for the services industry," said Liu Li-Gang, a senior executive at Australia & New Zealand Banking Group.

Shanghai started the VAT pilot on January 1.

The reform so far covers transport and some service industries such as information technology, research and development, culture and logistics.

The existing tax system, in place since 1994, allows for both business tax and value-added tax, creating double taxation for enterprises in the services sector.

With the economy slowing for seven quarters in a row, Beijing is eager to cut costs for small companies, many of them in the services sector.

The more than 10 million small and medium-sized enterprises (SMEs) that generate about half the nation's tax revenues and 80 per cent of the urban jobs, have been hit hard by the economic slowdown.

Li acknowledged the reform has "entered a crucial stage and deep water areas". The reform is expected to further slow tax collection at the central and local government levels.

The reform has so far cut more than 17 billion yuan (HK$21 billion) of the tax burden for the companies involved, according to Xinhua.

Wang Jun, a researcher at the China Centre For International Economic Exchange, said: "The government has moved fast because the need to stabilise growth is urgent."