Dec. 4 (NBD) -- Recently, Chinese Premier Li Keqiang signed a State Council decree, announcing the decision to end the interim business tax regulations and to amend the previous interim value-added tax (VAT) regulations.

A person-in-charge with the Legislative Affairs Office of State Council said that in fact, the launch of the experiment of replacing business tax with VAT in May 2016 means the cancellation of business tax that has been in force for over 60 years.

Business tax was once the third largest source of government revenues in China. In 2015 alone, revenues coming from business tax approached 2 trillion yuan (302.55 billion U.S. dollars).

The Chinese government first began experimenting with a VAT in 1979 and started applying the tax to specific sectors in 2012. The final four sectors to adopt a VAT are construction, property, finance and life services - which includes food and beverage, healthcare and tourism industries.

Statistics of the State Administration of Taxation show that a total of 1.7 trillion yuan (257.17 billion U.S. dollars) of taxes has been saved for businesses since the inception of a VAT. Moreover, replacing business tax with VAT also helps to grow the tax base, with the monthly increase of the number of tax payers in the above-mentioned four industries reaching 140,000 in 2017.  

Premier Li Keqiang noted in October that China's economy is facing downward pressure due to international financial crisis and structural problems. As a result, fiscal revenues declined. However, the Chinese government did not opt for heavier taxes, but expanded VAT pilot programs instead.

Feng Qiaobin, an economic professor at Chinese Academy of Governance, told NBD that currently VAT is the largest source of government revenues in China. Replacing business tax with VAT will be included in legislation plans of the 12th National People's Congress Standing Committee. This will help create a more inviting business environment.

Most researchers think that there is still room for the simplification of tax brackets and adjustment of tax rate of VAT, Feng noted.

Hu Yijian, dean of the School of Public Economics and Administration of Shanghai University of Finance and Economics, said that currently the services sector is subject to a 6 percent or a 11 percent VAT tax rate, while the industry and commerce sectors face a 17 percent rate. From the view of reducing VAT of the manufacturing industry, the 17 percent rate is highly likely to be reduced.

Email: tanyuhan@nbd.com.cn