The research report Tax Cuts and Fee Reductions and Enterprise Development was jointly issued by China Everbright Bank and Beijing National Accounting Institute
At the end of the 2019, it's time to ring out the old year and ring in the New Year. 2019 is the year of transition between the old era and the new one. Facing the increasing downward pressure, China’s economy has entered a “new normal”, transforming from high-speed growth to high-quality development.
In order to cope with the downward pressure on the economy, the government of China has shown far more determination and boldness than ever before, stimulating the vitality of market entities, supporting high-quality development and upgrading the industrial structure. One of the most significant measures is to promote a series of tax cuts and fee reductions measures, including deepening the value-added tax(VAT) reform, the inclusive tax cut for small and micro businesses, and reforms of social insurance contribution and non-tax income.
The 10th Caixin Summit was held at the Diaoyutai State Guesthouse on November 8, 2019. A research report, entitled Tax Cuts and Fee Reductions and Enterprise Development, was jointly issued by China Everbright Bank(CEB) and the Fiscal & Tax Policy and Application Research Institute of Beijing National Accounting Institute(BNAI).
Based on tax cuts and fee reductions over the past year in China, the report offers in-depth theoretical analysis, makes questionnaire surveys and empirical research, and finally provides some constructive policy suggestions. As the report points out, a series of tax cuts and fee reductions measures has been implemented since the 18th National Congress of the Communist Party of China, which plays a positive role in reducing the tax burden of market entities and promoting economic structure optimization.
With the complicated domestic and international situation and the deepening of economic reform, tax cuts and fee reductions hit the pain points and difficulties of market entities directly, which will continue to be the inevitable policy choice for our country to boost the economy.
After an overview of the background and significance, the report comprehensively presents several major characteristics of the current round of tax cuts and fee reductions, from which we can see the original intentions of the policy measures.
First of all, tax cuts and fee reductions provide wide coverage. A inclusive tax cut is the major policy orientation of the current round of tax cuts, which provide indeed policy bonuses to most of the social subjects.
The VAT is the largest tax in China. The tax cuts of VAT this time have a far-reaching influence not only due to the intensity of the reform but also the scale of tax cuts. Specific policies include reducing the tax rate from 16% to 13% for the manufacturing sector , and the rate from 10% to 9% for transportation and construction sectors. Moreover, the policies of additional deduction of input VAT and tax refund of increased excess VAT paid are pioneering institutional innovations.
Small and micro businesses account for a large proportion of the whole market in China, which has always been a focus group of tax cuts and fee reductions. By expanding the coverage of tax relief, introducing excess progressive rate of corporate income tax(CIT), and strengthening the tax incentives of VAT, the tax burden of small and micro businesses was effectively reduced and the overall economic development was prompted.
Deepening the VAT reform support the development and growth of the real economy. Reducing the social security contribution rate alleviates the burden of businesses. Simultaneously, the inclusive tax cut is also reflected in the coverage of taxpayers. Through the reform of individual income tax, the disposable income increased, which can boost domestic demand and consumption.
"Through the reform of individual income tax, the purchasing power of consumers has been improved significantly, which helps consumption to play a basic role in economic development and provides strong support for the smooth running of economy." Professor Li Xuhong, director of Fiscal & Tax Policy and Application Research Institute of BNAI, said in an interview.
The latest figures released by the State Administration Taxation confirmed the results of the measures above. In the first three quarters of 2019, the total amount of new tax cuts and fee reductions exceeded 1.78 trillion yuan, including over 1.5 trillion yuan in tax cuts and 272.5 billion yuan in social security fee reductions. In terms of tax categories, 703.5 billion yuan were made in the VAT reform, while 442.6 billion yuan was from the two-step reform of individual income tax in total, with 1,764 yuan per person on average.
The report pointed out that in addition to the “inclusive tax cut”, there is also the "targeted tax cut", aimed at strengthening the orientation of tax cuts and fee reductions in structural adjustment, focusing on the real economy dominated by manufacturing, and giving appropriate preference to advanced manufacturing and modern services. In the process of deepening the VAT reform , the original 17 percent tax rate was reduced to 16 percent and then to 13 percent. The 11 percent rate was lowered to 10 percent and then to 9 percent.
In addition, in order to encourage enterprises to increase investment in R & D, China has repeatedly adjusted the pre-tax additional deduction of R & D expenses and optimized other policies to encourage innovation in recent years. The policy, which increased the deductible proportion for R & D expenses to 75%, was extended to all businesses last year. According to the final settlement data of CIT in May this year, the tax cut only from this policy achieved 87.8 billion yuan.
Moreover, the report also analyzes the characteristics of strengthening countercyclical adjustment of tax cuts and fee reductions from the perspective of economics and public finance. When the downward pressure of economic growth increases, the government should adopt active fiscal policies, expand fiscal expenditure and implement the tax cut policies appropriately, so as to improve the quantity and quality of capital and labor investment in the whole society, and finally achieve the steady economic development.
Beside the analysis of the tax cuts and fee reductions measures, the report comprehensively compares the policies of developed countries such as the United States and the United Kingdom and developing countries such as India and the Philippines, and summarizes the trends and characteristics of international tax reforms. In particular, the research report sent questionnaires to managers of finance and tax departments of 524 sample enterprises with the help of China Everbright Bank to understand the their managing situations and the impact of tax cuts and fee reductions on enterprises.
The results of the questionnaire survey on enterprises confirm the conclusions above as well. According to the survey, 86.45 percent of the sample enterprises focus on the reduction of VAT rate, much more than any other policies listed. Some enterprises also pay attention to other policies, such as tax refund of increased excess VAT paid(48.85%), pre-tax additional deduction of R & D expenses(44.08%), accelerated depreciation of fixed assets(42.37%), reducing the social insurance contribution rate and the deposit ratio of housing provident fund(40.46%).
报告的一线企业调研也进一步证实了上述结论。报告调研显示，超过 80%的被调查企业代表表示主要关注增值税税率的降低，占比为 86.45%，远高于其他项目。增值税期末留抵退税、加大研发费用税前加计扣除政策力度、扩大固定资产加速折旧税收优惠范围、阶段性降低社会保险费率和住房公积金缴存比例的关注度次之，占比分别为48.85%、44.08%、42.37%、40.46%。
Mainly Concerned Tax Cuts and Fee Reductions Politics
When asked about the implementation effects of tax cuts and fee reductions measures, only 3.44% of them think that the effect was poor or basically ineffective, indicating that the tax cuts and fee reductions policies work well, and the enterprises share a great sense of gain from the policies.
Implementation Effects of Tax Cuts and Fee Reductions Policies
As for the change of their capabilities in several aspects in 2019 compared with last year under the influence of the tax cuts and fee reductions, more than half of them indicated that their growth capabilities have increased. In the meantime, a large proportion of surveyed enterprises get promotion in their debt paying capacity (41.79%), operation capacity(48.09%) and profitability(47.90%).
当被问及所在企业 2019 年各方面能力与去年同期相比的变化趋势时，超过五成的被调查者表示所在企业成长能力上升；同时，分别有 41.79%、48.09%以及 47.90%的被调查者认为企业偿债能力、营运能力及盈利能力上升。
Comparison of Various Capabilities of Enterprises in 2019 and 2018
The survey shows that the tax cuts and fee reductions can stimulate the vitality of the enterprises and improve their capacities, helping them raise the operating efficiency, improve the business conditions, and reduce the operating risks, so as to create economic and social values better. In general, most enterprises believe that the tax cuts and fee reductions reduce their tax burden effectively, and stimulate the development of the enterprises' capacities.
Base on the theoretical analysis, questionnaire survey and empirical research, the report puts forward several policy suggestions to the construction of China's taxation system from the perspectives of the legalization, marketization and internationalization, trying to provide some references to relevant researchs.
The host of the report, Professor Li, pointed out that the design of tax system should consistently insist on the principle of efficiency and fairness. As the direct tax have a significant effect on the redistribution of income, it still needs to be emphasized in the future tax reforms. For now, it is obliged to carry out the tax cuts and fee reduction policies to adapt with the recent domestic and overseas economic situation. However, tax neutrality is another target that China needs to achieve in consideration of a long-term implication. Equity on both taxation and society can be gradually realized with the help of statutory taxation, meanwhile the market should be given a full play in allocating resource. Moreover, all of us need to keep the international tax reduction trend in perspective, enacting more effective tax rules within the framework of inclusive growth to globally rationalize the tax revenue distribution and get rid of harmful international competition.
It is worth mentioning that it’s not the first chance for CEB and BNAI to have a collaboration work. As early as 2013, CEB cooperated with the Fiscal & Tax Policy and Application Research Institute of BNAI in the field of taxation services, which became one of the brand features with great reputation among banking industry provide by CEB Private Bank. During their symbiosis, they made great breakthrough and innovation in the taxation research field. A series of reports have been accomplished, such as Middle and Small-Sized Enterprises Tax Development Report, which supports the fiscal and taxation policies research of middle and small-sized enterprises; Environment, Taxation and Enterprise Development Report, which focus on sustainable development; International Taxation Report of High Net Worth Individual Clients Under CSR, which provides a guidance on making rational arrangements of global assets for High Net Worth Individuals; and Individual-Innovation-Drive Taxation Research Report, which optimizes the arrangements of individual-innovation-drive income and assets of High Net Worth Individuals. With the help of the research achievements, they provide interpretation and guidance on taxation issues most concerned by entrepreneurs, offer academic foundation to help high net worth clients make rational tax planning, and make good efforts on the improvement of China’s tax system.
During 2019, tax cuts and fee reductions catch most people’s eyes in the taxation field, and it is an indispensable measure that makes great contribution in easing the burden on the market entities and activating their vitality. Small and micro businesses are benefitting from the implement of a series of incentive policies, and now the positive effect is getting stronger with the act of the new-round tax cuts and fee reductions. Based on all the efforts and books of reports, CEB united with BANI again, finished the report, Tax Cuts and Fee Reductions and Enterprise Development, after a comprehensively research of all private enterprise clients of CEB Private Bank. The report aims at helping private enterprises catch opportunities timely, grasp the key points of new policies and obtain benefits from the effective planning of taxation services provided by CEB Private Bank.