Article/China Economic 50 People Forum Jia Kang Cheng Yu originally published in Shanghai Securities Journal
With the gradual adjustment of the policy of replacing business tax with value-added tax and resource tax, the reform will focus on the real estate tax and personal income tax; The tax rate structure of VAT and consumption tax also needs to be further optimized; The space for tax and fee reduction still needs to be explored.
Jia Kang: How will the tax system reform work in 2018? It is imperative to speed up the improvement of the tax legal system framework in 2018, and the reform of key tax categories will be closely followed. With the gradual adjustment of the policy of replacing business tax with value-added tax and resource tax, the reform will focus on the real estate tax and personal income tax; The tax rate structure of VAT and consumption tax also needs to be further optimized; The space for tax and fee reduction still needs to be explored.
As the largest main tax category in China, which has extensive and far-reaching impact on the modern economic system, VAT needs further reform and improvement. The key point of future reform should be to promote the construction of the three major systems of tax system, system and legal system, establish a more fair, concise and efficient value-added tax system, and comprehensively improve the tax governance ability and international competitiveness of tax revenue.
In general, there is more room for Chinese enterprises to cut fees than to cut taxes. Many fees and rates, government funds, etc., have certain space for reduction and exemption, and will help to straighten out the relationship between the government and the market, standardize the market order, further activate the vitality of market entities, so they should become the main focus of cost reduction.
In 2017, significant progress was made in China's tax system reform. Business tax bid farewell to the historical stage and realized the full coverage of value-added tax on goods and services; Resource tax legislation was launched, and the reform of ad valorem taxation was comprehensively promoted. The pilot reform of water resource tax was expanded to 9 provinces, autonomous regions and municipalities; The Environmental Protection Tax Law of the People's Republic of China has been passed and will be implemented on January 1, 2018.
2018 is the first year to implement the spirit of the 19th National Congress of the Communist Party of China, the 40th anniversary of reform and opening up, and the key year to build a moderately prosperous society in all respects and implement the 13th Five Year Plan. How can the tax system reform work in such a critical year? The national financial work conference held at the end of December 2017 has set the tone for the tax system reform in 2018: deepen the reform of the tax system, and form a tax system with unified tax laws, fair tax burden, and moderate regulation.
In view of this, it is imperative to speed up the improvement of the tax legal system framework in 2018, and the reform of key tax categories will be closely followed. With the gradual adjustment of the policy of replacing business tax with value-added tax and resource tax, the reform will focus on the real estate tax and personal income tax; The tax rate structure of VAT and consumption tax also needs to be further optimized; The space for tax and fee reduction still needs to be explored.
Accelerate the improvement of the tax legal system framework
As early as March 2015, in order to fully implement the basic strategy of governing the country according to law and accelerate the construction of a socialist country under the rule of law, the CPC Central Committee deliberated and passed the Implementation Opinions on Implementing the Principle of Legality in Taxation, which was drafted under the leadership of the Legal Work Committee of the Standing Committee of the National People's Congress, and made it clear that no new tax regulations would be introduced; If new taxes are imposed, the National People's Congress and its Standing Committee should formulate corresponding tax laws, and make arrangements for the time when the current 15 tax regulations will be revised into laws or repealed.
In December 2017, the 31st meeting of the Standing Committee of the 12th National People's Congress voted to adopt the Tobacco Tax Law and the Ship Tonnage Tax Law, which will come into force on July 1, 2018. From the temporary regulations to laws, these two tax laws show that China has taken firm steps in implementing the principle of statutory taxation, which also means that the process of statutory taxation will be fully accelerated in 2018. The acceleration of the process of "statutory taxation" has become an important measure in the modernization process of strengthening the national governance system and governance capacity.
Accelerate the improvement of key tax reform
1. VAT reform
On October 30, 2017, the Executive Meeting of the State Council adopted the Decision (Draft) on Abolishing the Provisional Regulations of the People's Republic of China on Business Tax and Amending the Provisional Regulations of the People's Republic of China on Value Added Tax. This marks that the business tax, which has been implemented for more than 60 years in China, has officially become history, and the era of comprehensive value-added tax has arrived.
Since the full implementation of replacing business tax with VAT, the tax system has been in a smooth transition, the policy has been implemented, the tax reduction has been expanded, the tax reduction has increased, and the tax reduction rate has been raised. The reform has basically achieved the expected results. The latest data released by the State Administration of Taxation shows that since the implementation of the pilot project of replacing business tax with value-added tax, the accumulated tax reduction has reached 1.7 trillion yuan. In particular, since the pilot program of replacing business tax with VAT was launched on May 1, 2016, as of September 2017, the cumulative tax reduction of the pilot program of replacing business tax with VAT was 1063.9 billion yuan, and the tax burden of all industries was reduced but not increased.
The replacement of business tax with VAT not only reduces the tax burden of taxpayers, encourages "mass entrepreneurship and innovation", but also promotes professional segmentation and industrial transformation and upgrading, opens up the input deduction chain in the entire industrial chain, improves tax neutrality, promotes unified market construction and supply side structural reform, and promotes stable growth, vitality and service industry development, And regional economic transformation and development played an important role in promoting.
As the largest main tax category in China, which has extensive and far-reaching impact on the modern economic system, VAT needs further reform and improvement. The key point of future reform should be to promote the construction of the three major systems of tax system, system and legal system, establish a more fair, concise and efficient value-added tax system, and comprehensively improve the tax governance ability and international competitiveness of tax revenue.
First, the future VAT rate can be further reduced to two levels or even to a single tax rate on the basis of reducing the fourth level to three levels in 2017. Second, expand the scope of VAT deduction, formulate innovation oriented preferential tax rate policies, effectively reduce the tax burden of micro enterprises, and stimulate market vitality. Third, we should pay close attention to the research and analysis of special problems reflected in some specific industries and fields, and timely revise and optimize relevant implementation rules if necessary. Fourth, VAT legislation should be the top priority in building the tax legal system. In the process of deepening the reform of the value-added tax system, it is necessary to fully follow the principles of neutrality, fairness and efficiency, fix the tax collection scope, tax base, tax rate, tax reduction and exemption policies and other tax elements in legal form, and on the basis of further revising and improving the current provisional regulations on value-added tax, timely raise them into law, And in the legislative process, there is room to continue to promote VAT reform.
2. Resource tax reform
Resource tax legislation has been launched. In November 2017, the Ministry of Finance and the State Administration of Taxation published the Resource Tax Law of the People's Republic of China (Draft for Comments), proposing that the resource tax is generally levied ad valorem. The four categories of energy minerals, metal minerals, non-metallic minerals and salt, 146 tax items, are listed in a unified way. This means that the ad valorem principle of the main achievements of resource tax reform will be established in legal form. According to the data of the Ministry of Finance, the annual resource tax revenue in 2016 was 95.1 billion yuan, while the resource tax revenue in the first 11 months of 2017 was 124.8 billion yuan, a year-on-year increase of 46.6%.
In November 2017, the Ministry of Finance, the State Administration of Taxation and the Ministry of Water Resources issued the Implementation Measures for Expanding the Pilot Reform of Water Resources Tax, and decided to levy water resources tax in nine provinces, autonomous regions and cities, including Beijing, Tianjin, Shanxi, Inner Mongolia, Henan, Shandong, Sichuan, Ningxia and Shaanxi, from December 1, 2017. This is a key step for China's resource tax reform after Hebei Province took the lead in the pilot project on July 1, 2016. Subsequently, many pilot provinces have introduced localized policies for water resources tax, further improving the top-level design, and steadily advancing the reform of water resources tax. An important principle for the expansion of the scope of the water resources tax reform is the shift of taxes and fees, which does not increase the burden of normal production and domestic water for enterprises and residents in general.
Levying water resources tax and promoting the implementation of the strictest water resources management system with tax regulation has a strong ecological construction significance. At the same time, water resource tax is also a local tax, which is of great significance for deepening the reform of the tax system and improving the local tax system. Expanding the pilot project of water resources tax is to serve the overall goal of giving better play to the role of tax regulation and promoting the conservation and rational development and utilization of water resources.
On the basis of the expansion of the pilot reform of water resources tax, the levy of resource taxes on timber, grassland and other resources can also be steadily promoted in the future. In the longer term, garbage and other wastes may also be included in the tax category. In short, all matters related to resource use and related ecological environment protection are likely to be included in the resource tax adjustment mechanism. It has become the general trend to introduce the resource tax law as soon as possible.
3. Environmental protection tax reform
Since January 1, 2018, the environmental protection tax law of the People's Republic of China, a highly concerned green tax law, has been officially implemented, and the pollution discharge fee system implemented for nearly 40 years has officially withdrawn from the historical stage. This tax is mainly levied on taxable air pollutants, water pollutants, solid wastes and noise. Due to the strict collection and management, the change of fees into taxes will bring cost and operating pressure to some pollutant discharge enterprises in the short term, affecting the short-term supply and demand relationship of some industries. But in the long run, it is conducive to promoting the transformation and upgrading of enterprises from high pollution and high energy consumption to high added value and low energy consumption, forcing enterprises to actively strengthen emission reduction and accelerate the survival of the fittest in the industry.
The Environmental Protection Tax Law of the People's Republic of China stipulates the division of labor among departments. The tax authorities collect and manage according to law. The competent environmental protection authorities are responsible for monitoring and managing pollutants according to law. The competent environmental protection authorities and tax authorities should establish a tax related information sharing platform and mechanism to exchange relevant tax information on a regular basis. Next, the financial, tax, environmental protection and other departments at all levels need to further do detailed work to ensure that the collection and management work is carried out effectively and orderly. At the same time, we will further refine and clarify relevant policies, provide more detailed guidance and services for taxpayers, effectively strengthen the cooperation between departments, and improve the ability and level of pollutant emission monitoring.
4. Consumption tax reform
The current consumption tax system in China began in 1994 and underwent a major adjustment in 2006. The current collection scope of consumption tax mainly includes 13 tax items such as tobacco, alcohol, cosmetics, precious jewelry and jewelry, refined oil, cars, etc. In 2016, China's consumption tax revenue was 1021.723 billion yuan, ranking second only to value-added tax, corporate income tax and business tax. As an important part of this round of fiscal and tax system reform, the reform direction of consumption tax is defined as "adjusting the collection scope, links and tax rates of consumption tax, and including high energy consumption, high pollution products and some high-end consumer goods into the collection scope". However, the overall reform plan has not yet been introduced, and there is no final conclusion on which consumer goods will be included in the expansion, how to adjust the tax rate and tax collection, how to divide the tax revenue and other specific details.
Looking forward to the consumption tax reform in 2018, we should first consider how to adjust the tax range according to the changes in the economic situation. When expanding the scope of taxation, we should not only increase some luxury consumer goods items, such as private aircraft, private yachts, high-end fashion, but also include some high-end consumer behaviors, such as sauna, nightclubs, entertainment, etc. Secondly, we should adjust the tax collection link of consumption tax. At present, China's consumption tax is mainly levied in a single link in the production process, which is easy to evade taxes. For example, some enterprises avoid consumption tax by setting up independent accounting sales companies to sell products to sales companies at low prices, and then the sales companies sell products at normal prices, which weakens the income adjustment role of consumption tax. Third, the consumption tax reform should be matched with the reform of the central and local income division, and should be considered in the whole tax reform.
At present, China's consumption tax is the central tax, and another important measure of this round of consumption tax reform is expected to change from the central tax to the sharing tax, which can also play a role in filling the local tax gap. In addition, considering the enthusiasm of the local government and the collection and management of consumption tax, we can try to hand over some tax items to local governments for collection or distribution, which can also stimulate the enthusiasm of local governments to guide consumption and optimize market construction.
5. Individual income tax reform
Since the reform of individual income tax in 2011, there has been no major action. As one of the six tax categories that need to be reformed proposed at the Third Plenary Session of the 18th CPC Central Committee, its reform plan is currently being studied, designed and demonstrated. The general idea is to combine synthesis with classification, design and implement the overall plan step by step, and gradually establish a personal income tax system suitable for China's national conditions.
In 2018, we should strive to be included in the key reform targets. Specifically, first of all, it is necessary to change the collection mode of individual income tax, and implement a combination of comprehensive and classified individual income tax collection mode. The comprehensive part is collected at the excess progressive tax rate according to the family and the year, and a more reasonable tax rate and expense deduction standard are formulated. In the unified market framework, the expense deduction standards of all regions should adhere to the national unified individual income tax expense deduction standards. At the same time, due consideration should be given to deductions for taxpayers, family support and other expenses. Secondly, we should reform the personal income tax collection and management system, and gradually transfer the authority of personal income tax collection and management to the central government.
As a direct tax to narrow the income gap, the collection and management authority of individual income tax belongs to the central government, which is not only to strengthen the national control and distribution capacity, to meet the needs of the central financial transfer payment, but also to prevent the non-uniform deduction base in various regions from forming barriers to human capital flow or impeding tax losses caused by the difference in collection and management. Thirdly, we should strengthen and improve the means of collecting and managing individual income tax. Strengthen and establish a declaration system focusing on individual self declaration, build a national tax network collection and management system, unify individual tax code, share personal tax information nationwide, and plug the collection loopholes. We will strengthen the supervision, investigation and punishment of illegal acts such as tax evasion, and increase the cost and risk of tax evasion by taxpayers.
6. Real estate tax reform
The reform of the real estate tax is a typical example of "gnawing the hard bone" in the supply side reform. In a narrow sense, what this reform needs to solve is the tax on the holding of consumer housing in China's real estate, which should start from scratch. Shanghai and Chongqing have carried out their own pilot reforms in this regard. The real estate tax is of unique significance to the shared development and income redistribution that China now attaches great importance to, and also has the characteristics of high difficulty that has been delayed for a long time. In 2018, real estate tax reform should be put on the agenda.
As a direct tax, in addition to raising government revenue, it plays a particularly important role in "fattening" the tax revenue in accordance with the principle of affordability, allowing those who hold luxury houses and multiple suites to make more tax contributions, so that these funds can be "replenished" after entering the national treasury, that is, the government uses this tax revenue to help vulnerable groups, We will strengthen the construction of affordable housing and promote social welfare. This "fat pumping" is not to hurt the muscles and bones of those who get rich first, but to appropriately transfer part of material interests at the level of their development and enjoyment. In essence, it is a "win-win" tax to promote social harmony.
After many years of property tax simulation experiments and the implementation of property tax reform experiments in Shanghai and Chongqing, the task of real estate tax reform should be promoted as soon as possible. The path is to implement the guidance of the Third Plenary Session of the 18th CPC Central Committee on "accelerating the legislation of real estate tax" as soon as possible on the track of "statutory taxation", It can be first levied in the first and second tier cities under great pressure of rising house prices. First of all, legislation must go first, and the most important thing is to go to the first instance first. The draft that has been operated internally by relevant departments for many years should be made public first, and the opinions of the whole society should be solicited. Secondly, in the setting of tax rate, the tax base and tax rate should be determined according to the value of real estate (market shadow price) and other factors.
Zero tax rate can be applied to the housing area that meets the basic needs of life, and standard tax rate can be applied to the housing area that exceeds the housing standard, so that high-income groups can enjoy large areas of housing and bear more tax burden at the same time. Third, we should pay attention to the integration and supporting reform of all taxes and fees related to real estate. Fourth, we should fully authorize local governments and implement them step by step.
Further tax and fee reduction
The report of the 19th National Congress of the Communist Party of China pointed out that China's economy has changed from a stage of rapid growth to a stage of high-quality development, and is in the critical period of transforming the development mode, optimizing the economic structure, and transforming the growth momentum. Building a modern economic system is an urgent requirement to cross the threshold and a strategic goal of China's development. To achieve high-quality development, enterprises, especially real enterprises, need to accelerate the pace of transformation and upgrading. Since China proposed to implement the supply side structural reform in 2015, it has actively launched a series of tax and fee reduction policies, including replacing business tax with VAT, simplifying the tax rate structure, cleaning up and standardizing fees, and supporting innovative development, to significantly reduce the tax burden of taxpayers.
The Central Economic Work Conference held in December 2017 proposed to vigorously reduce the cost of the real economy, reduce institutional transaction costs, continue to clean up enterprise related charges, increase the investigation and rectification of arbitrary charges, deepen the reform of power, oil and gas, railway and other industries, and reduce the cost of energy use and logistics. At the national financial work conference held in the same month, it was also proposed to continue to implement the policy of tax and fee reduction to further reduce the burden on enterprises.
As for the space for further tax reduction, in addition to the previously mentioned future VAT rate can be further reduced to two levels of tax rates or even to a single tax rate, there is still room for further reduction of corporate income tax. Especially when a new round of global tax cuts is coming, as one of the taxes that have the greatest impact on enterprises, the burden on enterprises can be reduced by appropriately reducing the corporate income tax rate. The data shows that the tax revenue in the first three quarters of 2017 was about 9.9 trillion yuan, of which the corporate income tax revenue was 2.7 trillion yuan, accounting for 27.2% of the total tax revenue. In the first three quarters of 2017, the total profits of industrial enterprises above designated size were 5.58 trillion yuan. If the corporate income tax was reduced by one-third, the profits of enterprises would increase by nearly 1 trillion yuan, which is equivalent to an increase of 16% in the total profits of enterprises.
Under the trend of reducing the corporate income tax rate worldwide, China can also consider reducing the corporate income tax rate appropriately, so as to give enterprises greater development space and investment motivation. In addition, on the basis of the revision of the Enterprise Income Tax Law in 2017, it can be considered to continue to increase the pre tax deduction ratio of R&D investment to reduce the tax burden of enterprises, and expand the policy dividend to non tech SMEs, so as to comprehensively promote the transformation and upgrading of SMEs.
In general, there is more room for Chinese enterprises to cut fees than to cut taxes. Many fees and rates, government funds, etc., have some room for reduction and exemption, and will help to straighten out the relationship between the government and the market, standardize the market order, and further activate the vitality of market entities. Therefore, it should be the main focus of cost reduction, and continue to introduce some high gold content and targeted policy measures to settle fees and reduce fees. For example, lower the standard of "five insurances and one fund" in combination with the reform of the social security system; Continue to clean up and standardize enterprise related charges, clean up and cancel business service charges and fees charged by industry associations and chambers of commerce, and reduce customs clearance fees; In combination with the reform of the administrative system, we will reduce the size of government institutions, reduce the power of examination and approval, the right to charge fees, and the accompanying "right to rent", and reduce the institutional costs of enterprises through supporting reforms.
(The author of this article introduces: member of the National Committee of the Chinese People's Political Consultative Conference and researcher of the Chinese Academy of Financial Sciences.)
