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Tax System and Tax Incentive. Lin Xuebing Ministry of Finance I MF Tax Policy Seminar for Asian and Pacific Countries on Tax Incentives Tokyo, June 9th 2009 Financed by JSA. Enacting Tax Laws & Regulations. National People’s Congress (the highest legislative body in China)
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Tax System and Tax Incentive Lin Xuebing Ministry of Finance IMF Tax Policy Seminar for Asian and Pacific Countries on Tax Incentives Tokyo, June 9th 2009 Financed by JSA
Enacting Tax Laws & Regulations • National People’s Congress (the highest legislative body in China) ——enacts tax laws dealing with broad principles of fundamental taxation matters. • The State Council (executive body) —— is empowered to issue tax regulations and provisions , as well as approve tax incentive policy • The Ministry of Finance(MOF) —— is responsible to propose national taxation strategy, formulate and explain tax laws, regulations and policies of domestic taxes, tariffs and taxes on imports, make plans on the reform of taxation policy etc.
Administration of Tax in China • State Administration of Taxation(SAT) ──In charge of the general administration of domestic tax laws. • Customs ──In charge of the general administration & collection of customs duties and taxes concerning imports & exports.
How many Taxes in China? There are 19 taxes totally in China
Tax Incentive—A Tool Against Economic Fluctuation • 1994-1997 against inflation to reach economy softlanding • introducing land appreciation tax and fixed assets investment adjustment tax • eliminate tax incentive; lower export rebate rate
Tax Incentive—A Tool Against Economic Fluctuation • 1998 to 2003 (proactive fiscal policy) • increase the export rebate rate(15.51%,108billion) • lower the tariff rate(reduced by 61.92% since 1992) • Suspend the fixed assets investment adjustment tax • investment credit • tax incentive on software and integrate circuit industry • tax policy for western region development
Tax Incentive—A Tool Against Economic Fluctuation • 2003-2008(stable fiscal policy) • Tax policy keep relatively stable. Tax incentive is given to support the high-tech, energy-saving and enviroment protection, agriculture industry, etc. • 2008 to present (proactive fiscal policy) • Tax incentive is given to stimulate the economy: new income tax law was implemented, VAT transformation, increase export rebate rate , increase the threshold of IIT, reduce the tax burden on real estate exchange, etc.
Current Tax Reform and Tax Incentive Adjustment in China • VAT reform: all individuals and units which sell taxable goods, provide processing or repair services in China or which import goods into the China are liable to VAT. Starting from 2009.Jan.1, VAT transferred from production type to consumption type, which means the input tax on newly-purchased fixed assets can be credited from output tax; • Tax incentive adjustment: eliminate VAT exemption on imported fixed assets; reduced collection rate from 4% or 6% to 3% for small-scale VAT taxpayer.
Current Tax Reform and Tax Incentive Adjustment in China • Enterprise Income tax: • Before Jan.1,2008 • FIE subjected to ： Foreign investment enterprise and foreign enterprise income tax law（1991～2007）: FIE , especially established in Special economic zones and development zones enjoyed generous tax incentive like reduced tax rate 15%, exemption for the first two years and at the rate by half for the next three years, reinvestment tax refund; more generous tax deduction, etc. • Domestic enterprise subjected to ： Enterprise income tax provisional regulation（1994～2007）: the major tax incentive is focus on the high-tech industry; newly-established enterprise; resource utilization and some Autonomous regions; The major features: location based tax incentive; more generous tax incentive to be attractive to FIE.
Current Tax Reform and Tax Incentive Adjustment in China • Enterprise Income tax: • after Jan.1,2008: • New enterprise income tax law and the implementation rule have come into effect from Jan.1st , 2008. • The importance of reforming EIT in China: • a system innovation • a more favorable, fair tax environment for the development of various enterprises, and benefit cross-border investment and trade • follow the international tax reform with main themes: “low tax rate, wide tax base, tax neutrality, stringent administration
Current Tax Reform and Tax Incentive Adjustment in China • Tax incentive policy: features: transition from regional-base principal to“predominantly industry-oriented, limited geography-based principal; more “green”, and unified tax incentives. focuses on various aspects including: 1.promoting technology innovation and scientific upgrade: R&D additional deduction; lower tax rate for high-tech enterprise; tax exemption and reduction for certain technology transfer; investment credit for venture capital; etc. 2.encouraging infrastructure construction: three years tax exemption and three yeas reduction for harbor, airport, railway, road, communication, electricity etc. 3.encouraging agriculture and environment protection, energy conservation, production safety: three years exemption and three years tax reduction by half for qualified program; investment credit for special equipment purchase for environmental protection and energy conservation, etc; 4. balancing regional development, promoting public welfare undertaking and taking care of social vulnerable group.
Remind: design of Tax Incentive policy • The major function of tax is collecting revenue, tax incentive policy couldn’t erose revenue base. • Tax incentive is only one of factor to encourage investment, protect enviroment, encourage technical innovation. • Tax incentive should be easily administrated, oriented; should be balanced with fiscal expenditure. • Tax incentive policy should be traced and evaluated, tailed to the economic change.
