By Qiu Chen
Tax authorities in Anhui Province will begin levying a value-added tax (VAT) on transportation and service industries to replace the existing business tax starting October 1 under a pilot reform program, Shanghai Securities News reported, citing an internal memo issued by the Anhui Provincial Office of the State Administration of Taxation (SAT).
According to the report, the Anhui Provincial Office of SAT has informed its State and local tax bureaus to prepare for the upcoming VAT pilot project, which has been approved by the Ministry of Finance and the SAT. Another nine regions, including Beijing, Jiangsu Province and Hunan Province, may take part in the pilot VAT reform program along with Anhui, the report said, quoting an insider from the central tax department.
VATs help lower the overall tax burdens of companies, especially those in service-related industries, as these levies minimize the potential for duplicate taxation compared to current business taxes, Wang Surong, professor of taxation at the Beijing-based University of International Business and Economics, told the Global Times.
About 2 billion yuan ($313.95 million) in taxes were saved in Shanghai during the three months after the city became the first place in the country to carry out experimental VAT reforms in its transportation and service sectors at the beginning of this year, according to the Shanghai Municipal Finance Bureau. Over 70 percent of the 129,000 Shanghai-based companies that participated in the program said their tax burdens were relieved, according to a survey by the National Bureau of Statistics (NBS).
Other provinces and cities are eager to join in the reforms in order to retain service-industry companies, many of which have relocated their headquarters to Shanghai to benefit from its new tax policy, said Yu Xiancai, an expert on taxation from Fudan University's Center for Public Economy Research.
The reforms in Anhui and other regions will probably model those seen in Shanghai, Yu said.
With VAT collection, companies can use a special invoice indicating the sum of VAT paid during the production process and then deduct the sum from their own VAT liability when they sell their products - this is why companies usually pay less in taxes even though the VAT rate is higher than the business tax rate, Yu explained.
However due to management problems, it is hard for transportation companies to deduct the VAT amount they paid in road tolls and fuel expenses, so their tax burdens rose sharply once the 3 percent business tax rate was replaced by the 11 percent VAT rate in Shanghai's reform program, Yu said.