VAT pilot program to expand

The State Council on Wednesday approved a plan to extend a value-added tax pilot program in Shanghai to eight provincial-level regions.

The program to replace the business tax with a VAT will extended to Beijing, Tianjin, Jiangsu, Zhejiang, Anhui, Fujian, Hubei and Guangdong, and the cities of Xiamen and Shenzhen, according to a statement of a State Council meeting presided over by Premier Wen Jiabao.

The plan will start on Aug 1 and be finished by the end of this year, the statement said.

To avoid double taxation, the State Council on Oct 26 approved the pilot program to replace the business tax with a VAT on selected service sectors, such as the transportation sector, in Shanghai from Jan 1.

A business tax is a tax on the gross revenue of a business, while a VAT is a tax levied on the difference between a commodity's price before taxes and its cost of production.

The replacement of the business tax could lift GDP growth by 0.5 percentage points and export growth by 0.7 percentage points, while helping create about 700,000 jobs, said Xiao Jie, director of the State Administration of Taxation, Xinhua News Agency reported in March.

The pilot program will be expanded to more areas and sectors nationwide next year, the State Council said on Wednesday.

Alan Wu, PricewaterhouseCoopers China national indirect tax leader, said in a report on Wednesday that the current business-tax system is not a business-friendly tax.

The costs of business tax are squeezing businesses' profit margins and increasing the cost of goods and services for consumers, he said.

"The transition to VAT is certainly a welcome change, given the current pressures in terms of affordability and the levels of taxation that are affecting the public," Wu said.

The PwC report also said that the pilot program will reduce the cost for exporters and make businesses more competitive.

Also on Wednesday, the State Council approved a plan to promote the development of central regions of China.

The development of the central region, which consists of Shanxi, Anhui, Jiangxi, Henan, Hubei and Hunan provinces, is important in China's regional development, according to the State Council statement.