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TAX & FINANCE: Find out more on VAT rate cut
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Find out more on VAT rate cut

了解增值税税率降低的相关信息
BT 201806 Finance 01      2018 年 3 月 28 日,国务院常务会议研究确定三项深化增值税改革措施。从 2018 年 5 月 1 日起,降低增值税税率、提高工业企业和商业企业小规模纳税人年销售额标准、对部分行业实施留抵税额退还。4月 4 日,财政部、国家税务总局先后发布《关于调整增值税税率的通知》、《关于统一增值税小规模纳税人标准的通知》,即32 号文、33 号文,对上述三项改革措施中的两项进行明确。两份通知内容已从 2018 年 5 月 1 日起执行。

      根据 32 号文规定,此次降低税率的范围并不限于会议提到的“制造业、交通运输、建筑、基础电信服务、农产品”。值得注意的是,税率降低的同时,32 号文也对出口退税率进行相应调整:原适用 17%税率且出口退税率为 17%的出口货物,出口退税率调整至16%;原适用 11%税率且出口退税率为 11%的出口货物、跨境应税行为,出口退税率调整至 10%。

      针对出口企业跨 5 月 1 日前后的跨期业务,32 号文根据生产企业和外贸企业出口退税计算原理的不同, 分别给予了过渡性安排。生产企业在 2018 年 7 月 31 日前出口涉及降低税率的货物或者跨境应税行为, 依旧按照 17%或 11%计算出口退税; 外贸企业在 2018 年 7 月 31 日前出口涉及降低税率的货物或者跨境应税行为,如果购进时销售方已按照17%或 11%税率缴纳增值税,外贸企业依旧按照 17%或 11%计算出口退税。

      33号文规定,自 2018 年 5 月 1 日起,小规模纳税人标准为年应征增值税销售额 500 万元,这将工业企业和商业企业的年销售额标准分别由 50 万元和 80 万元上调至 500 万元。


      据此,我们建议大家做好以下工作已顺利应对调整:财税部门将继续发布后续文件,对降低税率和提高小规模纳税人年销售额标准中的操作问题进行明确,纳税人应密切关注。增值税税率调整将对纳税人收入、成本、费用、税金及附加、利润等一系列财务指标产生深远影响。相关纳税人应合理测算上述影响,结合企业自身情况处理跨期业务,考虑是否对现有合同条款进行修订,重新议定价格条款,并适时调整业务系统和核算系统。出口企业应充分利用过渡政策, 在过渡期内完成相关货物的出口或完成跨境应税行为,以适用较高的出口退税率。可转回企业应充分行使 33 号文赋予的选择权,依据自身盈利水平、上下游纳税人情况等因素,选择继续保留一般纳税人身份还是转为小规模纳税人。

BT 201806 Finance 02On 28 March 2018, the Standing Committee Meeting of the State Council (the Meeting) introduced and confirmed the three measures to deepen the VAT reform commencing from 1 May 2018: lowering the VAT rates, raising the annual sales revenue threshold of small-scale industrial and commercial VAT taxpayers, and allowing a one-off VAT refund on the excess input VAT credit for specific industries. We have previously analysed these measures and predicted that follow-up tax circulars would be issued by the fiscal and tax authorities very shortly.
 

On 4 April, the Ministry of Finance and the State Administration of Taxation jointly released the “Notice relating to Adjusting the VAT Rates” (Caishui [2018] No.32, Notice 32) and the “Notice relating to Unifying the Standard for Small-scale VAT Taxpayers” (Caishui [2018] No.33, Notice 33) respectively, to clarify two of the three measures mentioned above. Notice 32 and Notice 33 will be effective from 1 May, 2018. We will now provide a detailed interpretation on Notice 32 and Notice 33, analyse the significant impacts on taxpayers, and advise taxpayers on responding proactively.
 

In detail

Reduce VAT tax rates

According to Notice 32, the scope of lowering tax rates is not only limited to “manufacturing industry, transportation, construction, basic telecommunication services, as well as agricultural products” as mentioned in the Meeting. All industries that are currently subject to 17% and 11% (including goods, labour services, services, intangible assets, and fixed assets, etc.) will be adjusted to 16% and 10% respectively. It should be noted that the VAT rate of imported goods will also be adjusted accordingly from 1 May.
 

From 1 May, besides the zero rate, the number of VAT brackets will remain to be three - 16%, 10% and 6%. Combining that with the request of “simplifying the VAT rate brackets from three to two” raised by Premier Li Keqiang in the 2018 Government Work Report, we expect that the VAT rates will be further adjusted in China in the future.
 

We summarise the VAT rates for different taxable activities before and after adjustment as follows: (see Appendix).
 

Special treatment for input VAT credit of purchasing agricultural products

Starting from 1 May, input VAT credit rate for purchasing agricultural products will be reduced from 11% to 10%. In addition, due to the specific nature and importance of the agriculture industry, there has always been special treatments for input VAT credit on purchasing agricultural products under China’s VAT regime. For example, after cancellation of the 13% VAT rate in 2017, sales of agricultural products was subject to 11% VAT. In order to maintain the level of input VAT credit claim by deep-processing agricultural enterprises on purchasing agricultural products, taxpayers purchasing agricultural products for taxable activities subject to 17% output VAT can claim an additional 2% input VAT credit on top of the stipulated 11% input VAT so as to ensure that the credit amount for agriculture produce will remain unchanged after lowering the VAT rate of agriculture products.
 

This special treatment has been extended under Notice 32. Although input VAT credit rate for purchasing agricultural products will be reduced to 10%, taxpayers purchasing agricultural products for taxable activities subject to 16% output VAT can still claim the additional 2% input VAT credit on top of the stipulated 10% input VAT, i.e., a total of 12% input VAT credit amount. This is undoubtedly good news for enterprises involving in deep-processing agricultural service.

BT 201806 Finance 03Adjustment of the export refund rate

Notice 32 also adjusts the export refund rate according to the reduction on the VAT rates:
 

• Export refund rate will be adjusted to 16% for export of goods and cross border VAT taxable activities that are originally subject to VAT rate and export refund rate of 17%;
 

• Export refund rate will be adjusted to 10% for export of goods and cross border VAT taxable activities that are originally subject to VAT rate and export refund rate of 11%;
 

Meanwhile, Notice 32 has not adjusted the export refund rates for certain goods whose export refund rates are lower than their applicable VAT rates.
 

For export enterprises which have VAT taxable activities that cross over 1 May, Notice 32 has provided transitional treatments to manufacturing enterprises and foreign-trading enterprises respectively according to their different export refund calculation principles. Manufacturing enterprises can continue to use 17% or 11% to calculate their export refund amount for the export of goods or cross-border taxable activities that occurred before 31 July, 2018; foreign-trading companies can continue to use 17% or 11% to calculate their export refund amount for the export of goods or cross-border taxable activities that occurred before 31 July if they have paid 17% or 11% VAT on purchasing the goods.

BT 201806 Finance 04Issues to be clarified for taxable activities that cross over 1 May

Other than the export refund treatments as above mentioned, Notice 32 does not provide any transitional policies for taxable activities that cross over 1 May. After Notice 32 is effective, if there is any discrepancy between any relevant former provisions and this circular regarding the VAT rates, this circular shall prevail. However, due to the diverse situation of taxpayers in their actual businesses, there are still many issues needed to be clarified in the follow-up circulars, including:
 

• What applicable tax rate should be used for activities that commences before 1 May and ends after 1 May -- we suggest to use the time the tax obligation arises as the standard in determining the applicable tax rate.
 

• How to issue invoices for activities that cross over 1 May -- we suggest to use the time the tax obligation arises as the standard for taxable activities that the taxpayer has already paid VAT based on the old VAT tax rate and the taxpayer should be allowed to issue the invoice using the old VAT rate if the invoice is required to be issued after 1 May. Accordingly, if red letter VAT invoices (credit invoices) are required to be issued for sales return, sales allowance, etc., the rate should follow the one in the original VAT invoice.
 

• For goods purchased before and sold after 1 May, whether the amount of input VAT on the purchases which have already been claimed according to the old VAT tax rate should be transferred out -- we suggest that, if the seller has already paid VAT according to the old tax rate, the input VAT should not be transferred. If there is a change in the use of fixed assets that input VAT have already been credited according to the old tax rate before 1 May, or if there is a change in the use of fixed assets purchased before 1 May where input VAT cannot be claimed on the original purchase but can be claimed after the change in use, further clarification is required as to whether the old tax rate or the new tax rate should be used in transferring out or claiming the input VAT credit.

BT 201806 Finance 05Unifying the annual sales revenue threshold amount of small-scale VAT taxpayers

Notice 33 stipulates that, from 1 May 2018, annual sales revenue threshold amount of small-scale VAT taxpayers will be RMB 5 million. The threshold of annual sales revenue for industrial and commercial enterprises will be increased from RMB 500,000 and RMB 800,000, respectively, to RMB 5 million, which is consistent with the standard of sales revenue for small-scale VAT taxpayers who conduct taxable activities under the B2V Pilot Reform. Notice 33 also stipulates that, industrial or commercial enterprises that has registered as a general VAT taxpayer in accordance with the original rules, may change their registration status back to a small-scale taxpayer by December 31, 2018, and any input VAT that has not been credited has to be transferred out. There are also some issues that needs to be clarified, for example:
 

• In accordance with the existing regulations, taxpayers who sell goods, provide services and conduct taxable activities under B2V Pilot Reform concurrently are required to account for the sales revenues of these different items separately in assessing whether the annual sales amount of small-scale taxpayers has been exceeded. After the implementation of Notice 33, taxpayers should pay attention to whether the above mentioned separate calculation regulation is still valid.
 

• How to deal with the situation of sales return and sales allowance that occurred after a general VAT taxpayer switched back to a small scale taxpayer on VAT taxable activities occurred when the taxpayer was a general VAT taxpayer.
 

• Notice 33 stipulates that taxpayers who change the registration status back to a small-scale taxpayer should transfer out its unclaimed input VAT credit. Considering that many different situations will exist in practice, it is unclear whether the tax authorities will issue follow up implementation notice to specify the input VAT transfer out for each situation.

BT 201806 Finance 06The takeaway

We suggest that VAT taxpayers should pay close attention to the relevant requirements and respond accordingly:
 

• The fiscal and tax authorities will continue to release follow-up circulars to clarify issues encountered on the implementation of the policies of lowering VAT tax rates and increasing the threshold of annual sales revenue for small-scale taxpayers, and taxpayers should pay close attention to them.
 

• The adjustment of VAT rates will have a profound impact on taxpayers' income, costs, expenses, taxes and surcharges, and profits. Taxpayers should perform a reasonable assessment of its impact, review activities that cross over 1 May, consider whether to revise the existing contract terms, refine the pricing terms, and adjust the business system and accounting system in due course.
 

• Export enterprises should make full use of the transitional policies, complete the export process of relevant goods or complete cross-border taxable activities during the transition period so as to apply the higher export refund rate.
 

• Enterprise that can switch back to s small scale taxpayer should fully utilise the choosing right in Notice 33 and choose whether to retain the status of a general VAT taxpayer or switch to a small-scale taxpayer based on factors such as their own profitability and the conditions of the upstream and downstream taxpayers.
 

As for the next step, the fiscal and tax authorities will also release follow-up implementation regulations to expand the scope of input VAT credit refund. Meanwhile, we will closely follow the development in VAT reform and share with you our observations and insight in due course.

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