The taxpayers will pay VAT instead of tax on profits and that will reduce the burden on enterprises. The Chinese government has made certain changes in the procedure for taxation of companies: now companies are exempted from the need to pay income tax, but they will be required to pay value added tax. Tax reform is accompanied by the spread of the circular of the State Council and shall enter into force on 1 May 2016.
For effective implementation of the new program administrations must interpreted new tax rules correctly. In turn, the companies are required to pay prescribed amounts of tax on time, refraining from evasion.
According to preliminary data, the transition to the new system will affect about 10 million taxpayers who will be required to pay VAT (mostly working in construction and real estate, finance and the service sector). The authors of the bill believe that the innovation will facilitate the tax burden on many businesses.
Li Keqiang, Premier Wu Yi said that the ongoing reform will have a positive impact on the profitability of companies by reducing the size of obligatory deductions to the treasury (more than 500 billion yuan for the whole of the current year) will be able to increase its productivity.
Replacing income taxes in favor of the VAT – one of the reforms that the authorities were promised to balance the different sectors of the economy. As experts explain, despite the increase in rates from 5.5%, which was the profit tax – up to 11% value-added tax, the total load will fall as the tax base becomes smaller.
It should be noted that such a step of the Chinese government will entail an increase in the budget deficit to 3% of GDP. Keqiang summarized that the global economy is not recovering enough dynamically, and also there was a decline in China's growth rate, it is necessary to pay attention to methods of expansionary fiscal policy.