SHENZHEN is among 10 provinces and cities that will implement a value-added tax pilot program between Aug. 1 and the end of the year, meaning some businesses will see tax cuts.
The reform will replace the business tax with a value-added tax (VAT) in the transportation industry and some modern service industries, according to a Wednesday statement by the State Council.
The trial was first launched in Shanghai on Jan. 1, aimed at streamlining taxes in the service sector and cutting taxes for small businesses. It will be expanded to Beijing, Tianjin, Shenzhen and Xiamen, as well as the provinces of Guangdong, Jiangsu, Zhejiang, Anhui, Fujian and Hubei, during the rest of the year.
Shenzhen has selected 50,000 companies for the trial, the taxation bureau said.
Unlike business tax, which is applied to the total revenue of a business, the VAT program allows companies to deduct part of their purchases of goods and services from the amount of tax they should pay.
Jean Ngan Li, a tax partner with KPMG China, said the VAT program will reduce the tax burden on businesses in service sectors including transportation, logistics, asset leasing, consulting, IT, research and development and advertising.
“The development of the service sector is now a top priority in Shenzhen,” Li told Shenzhen Daily on Thursday. “The VAT program will definitely promote its development in the city.”
The cabinet said in the statement that China would further expand the pilot program next year and implement the reform in selected industries nationwide.
About 70 percent of businesses in Shanghai have seen a reduced tax burden because of the pilot program, according to the National Bureau of Statistics.
“If this trend continues on a national basis, then these changes will be welcomed by the business community, particularly during this period of global economic instability,” said Lachlan Wolfers of KPMG.