The camp will increase the national expansion schedule or be determined by the next two sessions.
The recent symposium hosted jointly by the Ministry of Finance and the State Administration of Taxation in Nanjing highlighted encouraging progress in the expansion of the Business Tax Reform VAT Pilot. Known as "Camp Reform," this initiative aims to alleviate tax burdens and promote economic growth by replacing the traditional business tax with value-added tax. The pilot program has exceeded expectations, with its scope continuously expanding since its inception in Shanghai on January 1st of this year.
As the reform rolled out in Tianjin, Zhejiang, Hubei, and Ningbo on December 1st, an additional 200,000 companies joined the pilot program. The reform eliminates the issue of double taxation inherent in the business tax system. In Shanghai, where the reform began, the program has already reduced revenue by 22.5 billion yuan in the first ten months of the year, while Beijing experienced a reduction of 2.5 billion yuan in just two months.
In Jiangsu Province, which initiated its pilot program on October 1st, approximately 133,900 enterprises have been included in the reform, with small-scale taxpayers making up 81.03% of the total. Deputy Director of the Jiangsu Provincial Department of Finance, Huang Xiaoping, noted that over 90% of the participating enterprises saw a decrease in their tax burden, resulting in a total provincial tax reduction of around 10 billion yuan. Despite this, less than 10% of businesses experienced an increase in their tax burden. Huang explained that this increase was often temporary, particularly for general taxpayers who might face higher tax burdens initially due to low investments in fixed assets. Over time, as these investments were made, the tax burden would decrease.
For small-scale taxpayers, the new levy rate of 3% represents a significant improvement compared to the previous 5% business tax rate. Additionally, the issuance of special value-added tax invoices allows downstream enterprises to claim deductions, further enhancing the benefits. According to data provided by Professor Hu Yijian of Shanghai University of Finance and Economics, Shanghai's tax cuts amounted to 914 million yuan between January and May, representing approximately a 10% reduction.
In Jiangsu, the 10 billion yuan reduction in tax will be absorbed by the financial resources at various levels. Financial support policies, including special funds, will be implemented for enterprises that genuinely experience increased burdens due to the reform. Huang Xiaoping emphasized that the principle of "graduated burden sharing" ensures that the additional costs incurred by pilot enterprises are handled according to the current fiscal system—either by the provincial or local governments depending on where the VAT is remitted.
However, not all developments have been positive. Due to the lack of uniform guidelines regarding government support policies at the local level, some regions have encountered challenges, particularly in the transportation sector. Some enterprises have not yet received VAT invoices, creating complications. Furthermore, the reform's aim to foster industrial upgrading and modernize service industries faces obstacles in economically underdeveloped areas, where enterprises may prefer to register in larger cities like Shanghai for better opportunities.
Another challenge lies in distinguishing between the transportation and logistics sectors, which are essentially part of the same industry but are taxed differently under the new rules. The meeting also touched upon extending the reform to industries under vertical management, such as finance and insurance, with the Ministry of Finance recommending a localized approach for implementation.
The symposium, attended by representatives from 12 provinces, municipalities, and cities with independent planning status, underscored the importance of this reform as both a structural tax cut and a significant fiscal and tax system innovation. As per the State Council’s directive, the timeline for nationwide implementation remains on track for discussion during the 2013 National People's Congress and Chinese People's Political Consultative Conference sessions.
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