VAT will replace business tax nationwide

To alleviate the tax burden on companies and encourage industry upgrading, China will widen trials replacing its existing business tax with value-added tax (VAT) to the whole country.

According to the Xinhua News Agency Sunday, Vice Premier Li Keqiang said at a tax reform meeting in Beijing last week that levying VAT to replace business tax is an important part of the country's fiscal reform and a key measure to stabilize growth and adjust economic structure. He said the government should accelerate such measures so they can benefit more companies.

Under the current taxation system, companies pay business tax based on a percentage of revenue. After the reform, they will pay VAT, a tax on the value added to a product, instead. This change could help businesses recoup the cost of materials and other taxable inputs.

China's economic growth slowed to 7.4 percent in the third quarter this year, the lowest in more than three years.

To tackle economic difficulties, economists have called for the government to implement more policies, including tax reduction, that would foster growth in the world's second-largest economy.

Shanghai started the VAT pilot program at the beginning of this year. The municipality replaced business tax with an 11 percent VAT rate on the transport sector and a 6 percent rate on the service industry, including research and development, culture, and technological services.

And statistics at last week's meeting showed that the tax reduction has saved companies in Shanghai more than 17 billion yuan ($2.7 billion) so far.

The VAT reform program was expanded in August to nine provincial regions and three cities, including Beijing, Guangdong and Zhejiang provinces.

Some companies taking part in the VAT reform disclosed that their tax has been cut by 40 percent on average.

China has more than 10 million small and medium-sized companies, which contribute around half of the country's taxation revenue.