Guangzhou Issues FAQs Regarding VAT Reform

Nov. 6 – At a recent press conference held in Guangzhou, several frequently asked questions (FAQs) relating to the VAT reform in the city were answered by officials from relevant government departments. Details of the answers can be found below.

Q: Will tax burdens on enterprises increase after the implementation of VAT reform?

A: Based on preliminary estimations, the overall tax burden on pilot taxpayers will be reduced after the implementation of VAT reform. However, some enterprises may experience an increase in tax burdens in the short term. In response, Guangzhou has arranged a RMB500 million special fund to subsidize such enterprises.

According to Shaolan Deng, deputy director of the Guangzhou Municipal Office of the State Administration of Taxation, small and medium-sized enterprises will see their tax burdens largely reduced as the applicable tax rate has been lowered from 5 percent to 3 percent; while for enterprises in the transportation industry, changes to their tax burdens may vary depending on their actual business performance.

Q: Will the original preferential tax policies continue to apply?

A: Some enterprises have expressed concern over whether the original  preferential tax policies will continue to apply after the implementation of VAT reform, such as the original tax preferential policy that exempts them from paying business tax for the technology research and development service they provide.

According to Shaolan Deng, the original business tax exemption items will not be subject to VAT after the implementation of VAT reform, including copyright transfers by individuals and taxable services provided by handicapped individuals. Besides, two new preferential policies have been added to the VAT system. Pipeline transportation services and finance leasing business are entitled to a preferential policy for immediate VAT refund, and the simplified tax calculation method (tax rate of 3 percent) now applies to the public transportation service industry and the tangible movable property leasing service industry.

Q: Will the increased tax burden be passed on to customers?

A: Some transportation enterprises have expressed that they may consider raising freight costs if their tax burdens increase after the implementation of the new VAT reform. However, according to Caiying Duan, deputy director of the Financial Bureau of Guangzhou Municipality, although some enterprises may experience an increase in their tax burden on a short-term basis, their tax payable can be deducted in the following procedures given they have been included under the VAT deduction chain. Therefore the whole society will experience the effect brought by the structural tax reduction.

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