Authorities suggest integration of business tax, VAT

The national taxation authority has urged Guangdong Province to launch an experimental tax reduction reform, aiming to boost the country's slowing economy.

"Changing business tax into value-added tax (VAT) will eliminate double taxation on companies and propel economic growth," Xiao Jie, director of the State Administration of Taxation, said yesterday in Guangzhou, capital of Guangdong Province.

"If the country could conduct the tax reform, the tax reduction would amount to more than 100 billion yuan ($15.86 billion)," Xiao said, noting that he hopes Guangdong Province can join the pilot VAT taxation reform.

Under the current taxation system, companies in transportation and services industries need to pay business tax. After the reform, they will pay VAT, a tax on the value added to a product, instead. This change could help minus the cost of materials and other taxable inputs.

"But the deduction of the costs and taxable inputs is not done under the current taxation system, which amounts to double taxation on companies," Wang Surong, a professor of taxation at Beijing-based University of International Business and Economics, told the Global Times yesterday.

Based on the 2009 equation model provided by the taxation authority, if the authority changed business tax into VAT, it would add 0.5 percentage point to the country's gross domestic product (GDP) growth, create 700,000 new jobs and raise the resident's consumption power by 1 percent.

"The suggested reform signals the authorities' determination to lower taxes," Liu Shengjun, deputy director of Lujiazui International Finance Research Center at the China Europe International Business School, told the Global Times yesterday.

Liu said that it is necessary to lower the taxes on people given the huge difference in the growth of the GDP and the government's fiscal revenue. The reporting of government revenue and expenditure is also not transparent, he noted.

China's economy grew at 9.2 percent last year, much lower than the 24.8 percent growth in government's nationwide fiscal revenue, which surged to a new record of 10.37 trillion yuan ($1.64 trillion), according to the Ministry of Finance.

Ye Qing, a finance and taxation professor at Wuhan-based Zhongnan University of Economics and Law, said yesterday that he thinks many taxes in the country should not exist anymore, as they create heavy burdens on the companies.

"The taxation authority should cancel some taxes to conduct the taxation reform," Ye said.