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TAX & FINANCE: A glimpse of key fiscal and tax policies in China’s Government Work Report in 2020
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A glimpse of key fiscal and tax policies
in China’s Government Work Report in 2020
By Kelvin Lee, PWC

BT 202007 TAX 01On 22 May 2020, Premier of the State Council delivered the (“Report”) at the third session of the 13th National People’s Congress (NPC). The Report reviews China’s economic and social development work in 2019 and the first few months of 2020 and sets forth the main development targets and the overall plan for the next stage of work.
 

China has continued implementing proactive fiscal policies and a larger scale of taxes and levies reduction in 2019, with a major focus on relieving the tax and levy burden of the manufacturing sector and small and micro enterprises (SMEs). The tax and levy reduction measures which have been introduced includes: further lowering the Value-added Tax (VAT) rates, reducing the percentage of basic pension insurance contribution paid by enterprises, implementing the general preferential tax policies for SMEs and revising the Individual Income Tax (IIT) Law which encompass six types of special additional deductions. It is stressed in the Report that China has reduced taxes and levies in the total amount of RMB 2.36 trillion during 2019, exceeding the original target of around RMB 2 trillion, with the manufacturing sector and SMEs benefiting the most.
 

In response to the impact of the COVID-19 pandemic on the macro-economy and market players, the Report proposes to further reduce taxes and levies and aggressively implement current policies in conjunction with institutional arrangements to create a more enabling environment and help market players overcome difficulties and achieve development. The major taxes and levies reduction policies include: continue implementing reduction of VAT rates and the percentage of basic pension insurance contribution paid by enterprises, extending the expiry date of policies introduced earlier, such as: exempting medium enterprises and SMEs from contributing basic pension insurance, unemployment insurance and work injury insurance; reducing or cancelling VAT for small-scale taxpayers; exempting VAT on certain services; and reducing or cancelling civil aviation development fund contributions and port development fees, to the end of 2020. It is expected that these measures will additionally reduce the burden of enterprises by over RMB 2.5 trillion for the year.
 

In this article, we summarize the tax and levy reduction policies to be implemented in the second half of this year and share with you our observations.

BT 202007 TAX 022020年5月22日,国务院总理在第十三届全国人民代表大会第三次会议上作了《政府工作报告》(以下简称“报告”),回顾了2019年和今年以来中国经济社会发展工作,并对2020年发展主要目标和下一阶段工作进行总体部署。
 

2019年中国继续实施积极的财政政策,实施更大规模的减税降费,重点降低制造业和小微企业税费负担,推出了包括进一步降低增值税税率,下调城镇职工基本养老保险单位缴费比例,落实小微企业普惠性减税政策和修订后的个人所得税法及6项专项附加扣除在内的多项减税降费措施。报告指出,2019年全年减税降费达到2.36万亿元,超过原定的近2万亿元规模,制造业和小微企业受益最多。
 

为应对新冠肺炎疫情对宏观经济和市场主体的冲击,报告提出将加大减税降费力度,强化阶段性政策与制度性安排相结合,助力市场主体纾困发展。今年将主要实施的减税降费政策包括:继续执行下调增值税税率和企业养老保险费率等制度;前期出台的免征中小微企业养老、失业和工伤保险单位缴费,减免小规模纳税人增值税,免征部分行业的增值税,以及减免民航发展基金、港口建设费的执行期限全部延长到2020年底。报告预计2020年全年将为企业新增减负超过2.5万亿元。
 

在本文中,我们总结了将在2020年下半年执行的减税降费政策,并与您分享我们的观察。
 

Highlight one: Continuing the institutional arrangements regarding VAT reduction
看点1:延续增值税减税相关的制度性安排

A staff explains to a taxpayer about a new policy on VAT reduction at a local tax bureauA staff explains to a taxpayer about a new policy on VAT reduction at a local tax bureau

Since the completion of the B2V Pilot Program in 2016, deepening the VAT reform and optimizing the structure of VAT rates has been the biggest fiscal and tax highlight of the Report in every year. In recent years, China has released a series of measures to deepen the VAT reform, including: simplifying and reducing VAT rates, further perfecting the VAT credit chain, implementing the refund policies for incremental excess input VAT and accumulative input VAT credit balance, optimizing the export VAT refund policies for goods and services and further improving the preferential VAT policies, etc. Continued implementation of the measures to deepen the VAT reform will have a cumulative effect on sustaining the reduction of tax burdens of enterprises, as well as help enterprises overcome difficulties and maintain sustainable economic development. It should be noted that the Report proposes to continue implementing reductions of VAT rates instead of adjusting the structure of VAT rates, which indicates that, in addition to the zero VAT rate, China may continue to adopt the prevailing three VAT rate brackets of 13%, 9% and 6% in the near future.
 

In November 2019, the Ministry of Finance (MOF) and the State Taxation Administration (STA) jointly released the consultation draft of China’s VAT Law, which retains the prevailing three VAT rate brackets as well. Based on the background of reducing taxes and levies in recent years and the requirement of “simplifying the VAT rate brackets from three to two” by the State Council, it is well-worth monitoring whether the VAT rate brackets will be adjusted and simplified while China is moving forward with the enactment of the VAT law.
 

自2016年“营改增”全面收官以来,深化增值税改革、优化增值税税率结构是每年政府工作报告中最大的财税亮点。近年来,中国出台了多项深化增值税改革措施,包括:简并和下调增值税税率、进一步贯通增值税抵扣链条、实施增量留抵税额退税和部分存量留抵税额退税、逐步优化货物及服务出口退税政策、进一步完善增值税优惠政策等。深化增值税改革措施在今年继续执行,对持续减轻企业税收负担产生叠加的累积效应,将助力企业渡过难关,保持经济持续稳定发展。
 

需要注意的是,报告未提及调整增值税税率结构,而是提出今年继续执行下调增值税税率制度,这意味着除零税率外,在未来一段时间内可能将继续实施13%、9%和6%三档税率。
 

2019年11月,财政部、税务总局公布了《中华人民共和国增值税法(征求意见稿)》(以下简称“《征求意见稿》”),《征求意见稿》也承袭了现行三档税率。结合近年来减税降费的大背景以及国务院提出的“按照三档并两档方向调整税率水平”的要求,未来在推进增值税立法过程中是否会同时调整和简并增值税税率,值得予以关注。
 

Highlight two: Extending the VAT incentives for the prevention of COVID-19 outbreak

看点2:延长支持疫情防控增值税优惠政策

BT 202007 TAX 03In response to COVID-19 outbreak and to support enterprises and economy development, the MOF and STA jointly released Public Notice [2020] No.8 and Public Notice [2020] No.13 in February 2020 to clarify certain preferential tax treatments as follows:
 

•Income derived from transporting key pandemic prevention materials are exempted from VAT;

•Income derived from public transportation services, consumer services and certain express delivery services are exempted from VAT;

•Key pandemic prevention manufacturing companies are allowed to apply for the refund policy of VAT credit balance on a monthly basis

•From 1 March to 31 May 2020, small-scale VAT taxpayers in Hubei province have been granted temporary exemption of VAT and those in other regions in China have been granted a reduced levy rate of 1%. For certain items subject to VAT prepayment, the levy rate is also reduced at 1%.
 

The Report proposes to extend the implementation period of VAT reduction for small-scale VAT taxpayers and VAT exemption on certain services, such as public transportation, catering and accommodation, tourism and entertainment, and cultural and sports to the end of 2020. This extension further supports small-scale VAT taxpayers and consumer service taxpayers that are greatly affected by the pandemic in resuming work and production.
 

为应对新冠肺炎疫情,支持企业和经济发展,财政部、税务总局于2020年2月先后发布了2020年8号公告2和2020年13号公告,明确了相关减免税政策,具体包括:
 

•纳税人运输疫情防控重点保障物资取得的收入,免征增值税;

•纳税人提供公共交通运输服务、生活服务,以及为居民提供必需生活物资快递收派服务取得的收入,免征增值税;

•疫情防控重点保障物资生产企业可以按月申请全额退还增值税增量留抵税额;

•自2020年3月1日至5月31日,对湖北省增值税小规模纳税人免征增值税;除湖北省外,其他省份的增值税小规模纳税人,减按1%征收率征收增值税;预缴增值税项目同步降低预征率。
 

报告提出减免小规模纳税人增值税,免征公共交通运输、餐饮住宿、旅游娱乐、文化体育等服务增值税政策的执行期限全部延长到2020年底,为小规模纳税人和受疫情影响较大的生活服务业纳税人在复工复产中给予进一步支持。
 

Highlight three: Supportive tax and levy policies for medium enterprises and SMEs

看点3:中小微企业的税费扶持政策

BT 202007 TAX 034•Continue to reduce social security contributions paid by medium enterprises and SMEs: In order to support enterprises in the resumption of work and production, as well as stabilize and expand employment, the MOHRSS, MOF and STA jointly issued the (MOHRSS Fa [2020] No.11) in February 2020, providing that from February 2020, enterprises of different sizes in different regions can enjoy reduction or exemption of the basic pension insurance, unemployment insurance and injury insurance (hereinafter referred to as “social security contributions”). The Notice also clarified that medium enterprises and SMEs were exempted from social security contributions, with the exemption period of not exceeding 5 months (i.e. due to expire in June 2020).
 

To help medium enterprises and SMEs get through this challenging time and to ensure employment and people’s wellbeing, the Report proposes to extend the exemption period of social security contributions by enterprises to the end of 2020, which will further relieve their labor cost burdens. We anticipate that the MOHRSS, MOF and STA will issue a new circular in accordance with the Report to implement this policy before the end of June.
 

•Postpone income tax payments of SMEs and sole proprietors: Apart from exempting medium enterprises and SMEs from paying social security contribution, the Report also mentions that the income tax payments of SMEs and sole proprietors will be postponed to 2021. This initiative will have a positive effect on relieving the cash flow pressure of SMEs and sole proprietors. It is expected that the MOF and STA will issue relevant regulations to clarify the applicable conditions, the specific procedures, etc., in relation to postponing income tax payments by SMEs and sole proprietors.
 

•继续阶段性免征中小微企业的三项社会保险:为推动企业有序复工复产,支持稳定和扩大就业,人力资源社会保障部、财政部、税务总局在2020年2月联合发布《关于阶段性减免企业社会保险费的通知》(人社部发[2020]11号3),规定自2020年2月起,对不同地区、不同规模的企业执行阶段性减免企业基本养老保险、失业保险、工伤保险(以下简称“三项社会保险”)的单位缴费,并明确中小微企业三项社会保险单位缴费部分的免征期限不超过5个月(即在2020年6月到期)。
 

为帮助中小微企业渡过难关,保障就业和民生,报告提出将免征中小微企业三项保险单位缴费的执行期限延长到2020年底,有利于进一步减轻中小微企业的人力成本负担。预计人社部、财政部、税务总局将在6月底前按照报告的部署发文落实继续阶段性免征中小微企业的三项社会保险的政策。
 

•延缓小微企业、个体工商户所得税缴纳:除继续阶段性免征中小微企业的三项社会保险外,报告还提到延缓小微企业、个体工商户的所得税缴纳到2021年,这对于缓解小微企业和个体工商户的现金流压力具有积极作用。关于小微企业延缓缴纳企业所得税、个体工商户延缓缴纳个人所得税的适用条件、具体程序等问题,有待财政部、税务总局出台配套法规予以明确。
 

The takeaway

“Taxes and levies reduction” has been a key phase of China’s macro-economic control and proactive fiscal policies in recent years. In response to the changes in domestic and international economic landscapes, China has successively launched a series of policies and measures to reduce taxes and levies, so as to support the development of the real economy and vitalize market players. The total amount of taxes and levies reduction exceeded RMB1.3 trillion in 2018, and that amount reached to RMB 2.36 trillion in 2019. The 2020 Report further sets a target of over RMB 2.5 trillion for reducing taxes and levies for this year. These policies will relieve burdens on various market players, especially SMEs, which can stabilize employment, ensure living standards as well as keeping the fundamentals of the economy stable.

The , which was issued recently, also pointed out the direction for China’s next-step tax reform, including: deepening the tax reform, advancing the direct tax system and gradually increasing its proportion, moving the levying of consumption tax (CT) to later stages, establishing and optimizing the aggregate and scheduler IIT regime, steadily promoting the enactment of the property tax law, improving the local tax regime, adjusting and refining the local tax system to foster the sources of local tax revenue and to steadily expand the power of local tax administration.
 

So far, 9 out of the prevailing 18 types of taxes have been enacted (including Vehicle and Vessel tax, Environmental Protection Tax, Tobacco Tax, Vessel Tonnage Tax, Corporate Income Tax, Arable Land Occupation Tax, Vehicle Purchase Tax, IIT and Resource Tax), while the enactment of the other 9 types of taxes is undergoing. The draft Deed Tax Law and the draft Urban Maintenance and Construction Tax Law were passed to the Standing Committee of the NPC for the first review and also were issued to solicit public opinions. The MOF and STA jointly released the consultation drafts of the VAT Law and CT Law for public comments. It is also reported that the draft Stamp Duty Law is under legislative review by the Ministry of Justice. We note that in February 2020, the MOF issued a legislative work plan for 2020 which also mentioned that it is striving to complete the drafting of VAT Law, CT Law and Tariff Law for submission to the State Council in due course.
 

Under the current situation of great uncertainty due to the COVID-19 pandemic and the global economic and trade environment, the Report proposes to pursue a more proactive and impactful fiscal policy to support the reduction of taxes and levies and to release positive signals relating to helping market players to overcome difficulties, coordinating the advancement of pandemic control as well as promoting economic and social development. We will closely monitor the interpretations on the taxes and levies reduction measures covered in the Report and the upcoming circulars, and share with you our observations timely.
 

注意要点

减税降费是近年来中国宏观经济调控和积极财政政策的重要关键词。为应对国内外经济形势变化,中国陆续出台了一系列减税降费的措施,旨在支持实体经济发展,进一步为市场注入活力。2018年中国的减税降费总额约为1.3万亿元,2019年的减税降费总额达到2.36万亿元,2020年政府工作报告设定的减税降费的目标更是高达2.5万亿元,这将有利于减轻各类市场主体、尤其是中小微企业的负担,以保住就业民生,稳住经济基本盘。
 

近期发布的《中共中央、国务院关于新时代加快完善社会主义市场经济体制的意见》4再次提及了中国税收制度改革下一步的方向:深化税收制度改革,完善直接税制度并逐步提高其比重。研究将部分品目消费税征收环节后移。建立和完善综合与分类相结合的个人所得税制度。稳妥推进房地产税立法。健全地方税体系,调整完善地方税税制,培育壮大地方税税源,稳步扩大地方税管理权。
 

截至目前,中国现行的18个税种中,已制定法律的税种有9个(分别是车船税、环境保护税、烟叶税、船舶吨税、企业所得税,耕地占用税、车辆购置税、个人所得税、资源税),其余9个税种的立法工作仍处于进行时。其中契税法和城市维护建设税法草案已经全国人大常委会初次审议,并向社会公开征求意见;增值税法、消费税法草案征求意见稿已由财政部、税务总局向社会公开征求意见。据悉,印花税法草案送审稿正在由司法部进行立法审查。财政部在今年2月发布的2020年立法工作安排也提到将“力争在年内完成增值税法、消费税法、关税法的起草工作,并上报国务院”。
 

在当前全球疫情和经贸形势不确定性很大的情况下,报告提出积极的财政政策要更加积极有为,支持减税降费并加大减税降费的力度,释放了助力市场主体纾困、统筹推进疫情防控和经济社会发展的积极信号。我们将密切关注针对报告部署的减税降费政策的解读及相关具体政策的出台,并及时分享我们的解读和观察。

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