China delivers massive tax cuts via VAT reform

BEIJING -- China's reform on value-added tax (VAT) has reduced taxes for enterprises by more than 1 trillion yuan (about $150.6 billion) since its nationwide launch in May last year.

By the end of September this year, the reform saved 1.06 trillion yuan of taxes for business owners, which replaced business taxes with VAT to cut tax burdens and improve the business environment, according to the State Administration of Taxation (SAT).

As the most significant tax overhaul for two decades, the VAT reform is a key part of China's supply-side economic reforms. It was first piloted in Shanghai in 2012 and expanded nationwide in May 2016.

The expansion of VAT reform has not only resulted in massive tax cuts, but also encouraged the development of the service sector, supported manufacturing upgrades and stimulated consumption, the SAT said.

"The VAT reform has made China's division of labor more professional amid the ongoing globalization, which in turn spurred the development of the modern service industry," said Lin Jiang, deputy head of a free-trade zone research institute at Sun Yat-sen University.

China is counting on services, particularly high value-added services in finance and technology, to lessen the economy's traditional reliance on heavy industry and investment.

In a move to further the reform, the State Council approved at an executive meeting held last week a draft on abolishing the provisional regulation on business tax and on revising the provisional regulation on VAT.