Tax Payment Threshold Raised and VAT Rate Lowered

Issuance Date: April 8, 2018 Source: Economic Daily

Ministry of Finance (“MOF’) and State Administration of Taxation (“SAT”) co-issued an announcement on April 4 that the VAT payment threshold is raised and their VAT rate is lowered for small-scale taxpayers. So the enterprises can access tangible benefits from tax cut.

According to the Circular, the taxable sales for small-scale VAT payers should be RMB 5 million or less each year. Meanwhile, those companies and individuals, which are registered as the general VAT payers according the Implementing Rules for the Interim Regulations of the People’s Republic of China on Value-added Tax, can be registered again as the small-scale taxpayers no later than December 31, 2018, and turnover is the choice for their input taxes that remain un-deducted. The policy will come into effect since May 1, 2018.

According to China’s existing VAT policy, there’re three kinds of small-scale taxpayers, including the industrial enterprises with annual taxable sales of RMB 500,000, the commercial enterprises with annual taxable sales of RMB 800,000 and the service enterprises with annual taxable sales of RMB 5 million.

“The tax payment threshold for industrial and commercial enterprises is raised to RMB 5 million. After the standard for small-scale taxpayers becomes uniform, the tax system gets simpler and fairer. The small and micro enterprises can choose to get registered as the small-scale taxpayers to access the preferential tax treatment at the tax rate of 3% or choose to get registered as the general taxpayers to access the benefits from deducted input tax,” said Wang Jianfan, director of the Tax Policy Department of the Ministry of Finance.

For VAT rate, the new regulation stipulates that the former VAT rate of 17% and 11% for the taxpayers’ taxable sales or imported goods is changed to 16% and 10% separately; the former deduction rate of 11% for the taxpayers’ purchase of agricultural products is changed to 10%; if the taxpayers purchase the agricultural products for producing, selling or processing as agents the goods at the tax rate of 16%, the input tax will be calculated according to the deduction rate of 12%; for the exported goods that were subject to the tax rate of 17% and the export rebate tax rate of 17%, the new export tax rebate rate is 16%; for the exported goods and cross-border taxable conducts that were subject to the tax rate of 11% and the export rebate tax rate of 11%, the new export tax rebate rate is 10%.

It’s decided at the executive meeting of the State Council that three measures to deepen VAT reform will be put into practice since May 1, 2018, including reducing tax rate, unifying the standard for small-scale VAT payers and refunding overpaid VAT for some enterprises. The tax burden for market entities will be reduced by more than RMB 400 billion annually. China will achieve the total tax cut of RMB 2.1 trillion through VAT Pilot for the last five years, thus boosting the enterprises’ earning capacity and development potentials.