China's VAT reform boosts economic vitality

Hu Yijian, a professor with Shanghai University of Finance and Economics, believed that it is imperative to expand the reform nationwide; otherwise, regional taxation differences would fetter reasonable resource allocation across the country.

The pilot reform includes more service industries, with film, radio and television industries being covered this time.

In addition, the reform will be expanded at a due time to railway transport, postal services and telecommunications industries and be completed by the end of 2015, according to the State Council.

Currently, turnover tax was levied on nine industries in China, namely, transport, construction, financial and insurance, postal and telecommunications, cultural and sports, entertainment, service, transfer of intangible assets and sales of real estate.

The VAT reform will be pushed forward from one industry to another, and will be fully completed in all these nine industries, said Liu Shangxi, adding that turnover tax will be consigned to history by then.

Breakthrough in reform of fiscal and taxation systems

The current reform is thought to be an important step in the reform of fiscal and taxation systems as it calls for improvement in the VAT system as well as adjustment of tax revenue distribution between the central and local governments.

The impact of the reform could be as significant as that of the tax reform in 1994, when central government withdrew most of the tax revenue ownership from the local authorities, according to Gao Peiyong.

He also noted that as turnover tax is a major tax revenue source for local governments, the current fiscal and taxation systems should be reformed to readjust the distribution of tax revenue between the central and local governments.

Liu Shangxi shared the same view, saying that reform in the fiscal and taxation systems will pass on to other aspects, such as transfer of payments, revenue distribution between central and local governments, as well as relationship between the government and enterprises.

He suggested that China take the opportunity to press ahead with the restructuring of the economic system.