China's new VAT rate cut fuels real economy

Li Yunxia's company will save about 6 million yuan (940,000 U.S. dollars) in annual operating cost from May, thanks to the VAT rates cut rolled out in China.

Li is the tax manager of Yunnan Raycom Technology Industry Investment Co. in southwest China's Yunnan Province.

"The annual sales volume of our company is around 1 billion yuan.

According to the new VAT policy, the tax rate will be decreased to 10 percent from 11 percent, which could save us about one percent of operating costs," Li said.

Li's company is among hundreds of thousands of beneficiaries from China's tax reduction campaign to boost the real economy.

According to China's State Council, the country will cut VAT rates as part of a tax reduction package amounting to 400 billion yuan this year.

Starting from May 1, the tax rate in China will be lowered from 17 percent to 16 percent for manufacturing and some other industries, and from 11 percent to 10 percent for transportation, construction, basic telecommunication services and farm produce.

As of May 2, there are more than 10,000 companies issuing 170,000 VAT invoices using the new rates in Yunnan, involving more than 2.54 billion yuan and with taxes exceeding 349 million yuan.

According to the State Administration of Taxation (SAT), 11.32 million invoices involving about 146.9 billion yuan have been issued nationwide as of May 2 .

"The reform is being pushed forward in a stable way," said Deng Yong, an official of SAT.

Investment bank China International Capital Corporation (CICC) estimated that firms in the two tax brackets will see their VAT tax burden decline by 6 percent and 9 percent, respectively.

"Thanks to the policy, we can put more money to talent cultivation and research and development to provide qualified and professional services to our customers," Li Yunxia said.

"Lowering the tax rates is the most directive measure in tax reduction, which plays a significant role in further boosting the market vitality and driving industrial development," said Mei Shucan, senior official with Yunnan Provincial Office, SAT.

"Preferential policies concerning taxation should be actively implemented to better the business environment and make more market entities enjoy the bonus from the reform," she added.

Besides VAT reduction to promote the real economy, Yunnan also exempted 6 billion yuan of taxes to enterprises through replacing their business taxes with VAT in the first quarter this year, up more than 80 percent.

"A series of tax reforms in China will help to ease the burden of enterprises, increase their circular funds, and inject fresh impetus to the country's real economy," said Li Lei, associate professor with Yunnan University of Finance and Economics.

Due to the new VAT rates, the highest retail prices of gasoline and diesel in China have dropped by 75 yuan and 65 yuan per tonne, respectively, since May 1.

Automobile company Jaguar Land Rover has adjusted the selling prices of almost 70 types of cars in the Chinese market, with the biggest drop of about 20,000 yuan.

"The government should lead and encourage enterprises to conduct investment or expand reproduction to promote their business development," Li added.

China aims to reduce taxes on businesses and individuals by more than 800 billion yuan this year.

Editor: John Li