Shanghai Researches on VAT Pilot Reform, aiming to Expand Pilot Scope

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Oct. 2 – Shanghai launched the business tax (BT) to value-added tax (VAT) pilot conversion reform at the beginning of this year and, as a result, the tax burden on small-scale taxpayers and general taxpayers in Shanghai reduced by RMB610 million and RMB630 million, respectively, over the first half of the year. Shanghai’s local tax authorities are currently conducting research on the pilot reform and its amplification effect, with the next step believed to be winning support from the relevant state departments to expand the industry scope of the reform.

According to the annual report presented by Bo Zhou, head of Shanghai’s Development and Reform Commission, by the end of June 2012, enterprises included under the VAT pilot reform reached 139,000 in Shanghai (including 8,779 newly-establishes enterprises). Among these, general taxpayers accounted for 48,000 while small scale taxpayers represented 91,000.

After the launch of the pilot reform, the tax burden on the pilot enterprises reduced significantly, and small scale taxpayers and general taxpayers saw the dramatic drop in their tax burdens. Moreover, after the implementation of transitional financial support policies, the financial support fund allocated in advance by the Shanghai tax authorities reached roughly RMB410 million in the first half of 2012, effectively balancing the increased tax burden on some pilot enterprises.

“The BT to VAT pilot reform plays a positive role in breaking the bottleneck of the development system and mechanism for Shanghai’s service industry,” Zhou said. During the pilot reform, pilot enterprises in the modern service industry accomplished the transition from “full amount taxation” to taxation only on the “added value,” which further promotes and supports the innovation transformation of the pilot enterprises, as well as facilitates specialized division. Meanwhile, small and micro-sized enterprises included under the reform saw their tax burdens reduced by more than 40 percent, increasing the willingness of transnational companies to settle down in Shanghai.

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