Taxes reduced by VAT reform, revenue increases

China has achieved the largest tax cut so far through its value-added tax reform, with the total reduction rising by 60 percent in 2017 from a year earlier, according to data released by the State Administration of Taxation.

During the last year, 918.6 billion yuan ($145.93 billion) of tax was cut after the replacement of a business tax by VAT, compared with a cut of 573.6 billion yuan in 2016, said Wang Shiyu, deputy head of the administration's tax policy and regulation department, at a news briefing on Thursday.

The country's VAT reform, which is seen as a key part of supply-side structural reform efforts, was first piloted in Shanghai in 2012 and was then expanded nationwide from May 1, 2016. During that period, nearly 2 trillion yuan of tax has been cut, according to data from the Ministry of Finance.

Finance Minister Xiao Jie pledged at the annual work conference in December that further implementing tax cut policy is a priority this year, to further ease enterprises' burden and to give more impetus to economic growth.

Experts have predicted that a further reduction of more than 1 trillion yuan could be achieved in 2018 through VAT reform, with a possible cut of the VAT tax rate by 1 to 2 percentage points. The highest tier of the current value-added tax rate is 17 percent.

China's VAT rate structure was further cut from four to three tiers－set at 6 percent, 11 percent and 17 percent－starting from July 2017, which led to tax cut of 14.7 billion yuan from July to December, according to a State Administration of Taxation official.

Despite the tax reduction through VAT reform, the country's overall tax revenue in 2017 increased to 12.6 trillion yuan, up by 8.7 percent year-on-year, compared with annual growth of 4.8 percent in 2016, the administration's statistics showed.

The acceleration of tax revenue growth last year, which brought to an end a three-year slowdown, "has shown strong correlation with GDP growth", which has risen to 6.9 percent from 6.7 percent in 2016, said Zheng Xiaoying, deputy head of the administration's revenue planning and accounting department.

Tax revenue from the service sector, which rose by 9.9 percent year-on-year in 2017, has contributed 56.1 percent of the total, 12.3 percentage points higher than that from the industrial sector, according to the official data.

Niu Li, deputy director of the economic forecast department of the China Information Center, said that the current tax rate for Chinese enterprises is still high and needs to be further reduced or it might curb their investment in the near future.

Yan Yan, chairman of China Chengxin International Credit Rating Co Ltd, said that as financial regulation is tightening, higher financing costs in the capital market will increase pressure on business operations. "Additional tax reduction is required to support the growth of the real economy, while limiting profit squeezing from higher financing costs," he said.