(The author of this article is Li Chao, chief economist of Zheshang Securities)
Value-added tax is a tax that is very closely related to macroeconomic activities, known as the most important financial invention in the 20th century, mainly based on the value-added amount generated by goods (including taxable services) in the process of circulation as a kind of turnover tax levied on the basis of the so-called value-added tax refers to the taxpayer's sales of goods, the provision of processing, repair and repair services, services, intangible assets or real estate transfer in multiple links of the added value or added value of commodities. Value-added tax is an off-price tax, and value-added tax is levied, and no value-added tax is not levied. That is, the VAT payable by the enterprise in a certain period of time is equal to the output tax minus the input tax, and the tax is paid according to the actual amount. We believe that considering the inherent neutrality principle of VAT, the tax burden is the same in the case of the same price, no matter where the commodity flow is and no matter what the mode of operation, so the mainland VAT system is continuously reformed to promote the creation of a growth-friendly tax system, which is conducive to reducing the negative impact on investment and production decision-making, and promoting the modernization of the national governance system and governance capacity.
>>1. Value-added tax is a turnover tax levied on the basis of the value-added amount generated in the process of circulation
According to the Provisional Regulations of the People's Republic of China on Value-Added Tax, entities and individuals that sell goods or processing, repair and repair services, services, intangible assets, immovable property and imported goods within the territory of the People's Republic of China are VAT payers and shall pay VAT in accordance with the regulations. If an overseas entity or individual sells labor services in mainland China and does not have a business establishment in mainland China, its domestic agent shall be the withholding agent; If there is no agent in China, the purchaser shall be the withholding agent.
It is generally believed that the current VAT rate has four levels, which are 13%, 9%, 6% and zero rate. For taxpayers, the VAT rate for the sale or import of goods (except for specific goods) and the provision of processing, repair and repair services is 13%; The value-added tax rate is 9% for the sale of grain, edible vegetable oil, tap water, heating, air conditioning, hot water, coal gas, liquefied petroleum gas, natural gas, biogas, residential coal products, books, newspapers, magazines, feed, fertilizers, pesticides, agricultural machinery, agricultural films, agricultural products, and other goods stipulated by the State Council. In addition, taxpayers provide transportation services, postal services, basic telecommunication services, and construction services, and the VAT rate is also 9%; Taxpayers who provide financial services, modern services, and life services are subject to a VAT rate of 6%; At the same time, since 2016, domestic entities and individuals have been subject to the "zero" VAT rate when cross-border sales of services and intangible assets within the scope of the State Council.
>>2. VAT taxpayers are divided into "general taxpayers" and "small-scale taxpayers"
In accordance with the basic principle of VAT, general taxpayers use the "tax rate" to calculate the tax, and only the "value-added" part is taxed. In order to facilitate the calculation, general taxpayers generally use the method of tax deduction to calculate VAT. That is, output tax amount - input tax amount = VAT amount. Among them, "output tax" refers to the VAT amount calculated according to the sales amount excluding tax and the VAT rate for taxpayers providing taxable services (or selling goods). The "input VAT" refers to the VAT paid or borne by the taxpayer for the purchase of goods or the acceptance of processing, repair and repair services and taxable services. Small-scale taxpayers use a simpler calculation method, use the "collection rate" to calculate the tax, and levy taxes on the basis of the full amount of sales, which does not require sound accounting.
We remind that if a taxpayer concurrently sells goods, services, services, intangible assets or immovable property, and different tax rates or levy rates apply, the sales amount subject to different tax rates or levy rates shall be calculated separately; If it is not separately calculated, the higher tax rate shall be applied. A sale is a mixed sale if it involves both services and goods. Units engaged in the production, wholesale or retail of goods and individual industrial and commercial households shall pay VAT according to the sales of goods; The mixed sales of other units and individual industrial and commercial households shall be subject to VAT according to the sales services. If a taxpayer concurrently engages in tax exemption or tax reduction items, the sales amount of tax exemption and tax reduction items shall be calculated separately; If it is not separately calculated, it shall not be exempt from tax or reduced.
>>3. Pay attention to VAT legislationAccording to the arrangement of the 2024 Legislative Work Plan of the Standing Committee of the National People's Congress, the third review of the VAT Law (Draft) is scheduled for December 2024, which also means that the legislative work of the VAT Law will be completed within the year. In our view, the VAT tax has been raised to the legal level through legislation, and a separate clause has been used to clarify that VAT is an off-price tax, and the taxable value of taxable transactions does not include VAT. As early as 2019, the State Administration of Taxation issued the VAT Law (Draft for Comments). Three years later, 2022 ushered in the first review, and in August 2023, it was submitted to the Standing Committee of the National People's Congress for the second review. Generally speaking, it is expected that the VAT legislation will follow the idea of shifting the tax system, keep the current tax system framework and tax burden level basically unchanged, and upgrade the provisional regulations and relevant policies and regulations of VAT into law, mainly stipulating the scope of taxation, taxpayers, tax rates, tax payable, tax incentives and collection management.
>>4. Value-added tax shall be simplified according to objective needs
Referring to the experience of mature international markets, among the more than 170 countries and regions that have implemented VAT, the tax rate structure has both a single tax rate and multiple tax rates. From the perspective of practical experience, before the pilot of replacing business tax with value-added tax, the mainland value-added tax had two tax rates of 17% and 13%. In order to ensure the smooth transition between the old and new tax systems and reduce the tax burden on the pilot industries, the mainland added two low tax rates of 11% and 6%, that is, the VAT rates are divided into four levels: 17%, 13%, 11% and 6%. Behind this, we believe that the main consideration is that according to the actual tax burden of the pilot industry, the VAT rate level of land transport, water transport, air transport and other transportation industries is basically between 11% and 15%, and the modern service industries such as R&D and technical services, information technology, cultural creativity, logistics assistance, and assurance consulting services are basically between 6% and 10%. In order to ensure that the overall tax burden of the pilot industry does not increase, the reform pilot has selected two low tax rates of 11% and 6%, which are applicable to the transportation industry and some modern service industries respectively.
With the inclusion of the four major industries of construction, real estate, finance and life services in the pilot project of replacing business tax with VAT on May 1, 2016, the VAT reform has achieved full coverage. From 1 July 2017, the VAT rate structure will be simplified and the 13% VAT rate will be abolished. Taxpayers who sell or import agricultural products (including grain), tap water, heating, liquefied petroleum gas and other goods are subject to a tax rate of 11%. Generally speaking, the four VAT rates at this time are 17%, 11% and 6%. On March 28, 2018, the executive meeting of the State Council decided to further deepen the VAT reform, and from May 1, 2018, the two tax rates of 17% and 11% will be reduced by one point each (the rest of the tax rates remain unchanged), that is, the corresponding VAT rates will be cooled to 16% and 10%. On March 5, 2019, Premier Li Keqiang announced in the "Government Work Report" that he would deepen the VAT reform, reduce the 16% tax rate to 13% in manufacturing and other industries, reduce the current 10% tax rate in transportation, construction and other industries to 9%, and keep the 6% tax rate unchanged. Since then, there have been four VAT rates in the mainland, which are 13%, 9%, 6% and 0% respectively.
>>5. The mainland's value-added tax reform has promoted the gradual improvement of the system
VAT is an imported commodity from the mainland. Since the 50s of the 20th century, the value-added tax was first created by France, and it has developed into the main tax in the turnover tax system of most countries and regions. Since 1979, the mainland has implemented value-added tax on a trial basis for some goods, and since 1994, it has fully implemented value-added tax on the sale and import of goods. With the reform process of establishing a socialist market economic system, specifically, it includes the continuous expansion of the scope of value-added tax collection until it is fully implemented in all industries in the country; From the trial implementation of different goods and services taxes for domestic and foreign-funded enterprises, to the implementation of unified value-added tax for domestic and foreign-funded enterprises; Transition from production-based VAT to consumption-based VAT; From the part of the input VAT that exceeds the output VAT to the retained credit refund. At present, value-added tax has developed into the tax with the highest proportion of tax revenue, and it is also the largest tax in the mainland. At the end of 2023, domestic value-added tax revenue reached 6,933.2 billion yuan, accounting for 38% of the country's total tax revenue. It can be said that the mainland has embarked on a path of value-added tax reform with distinctive Chinese characteristics, accumulated experience in the design and collection and management of value-added tax policies, and formed a modern value-added tax system with three distinctive characteristics: a wide range of taxation, few tax rates, and as few tax incentives as possible.
>> risk warning
local implicit debt risk; The deterioration of the external situation has interfered with the mainland's economic operation.
The views expressed in this article are solely those of the author.