China to deepen tax reforms: financial minister

Tax systems concerning business turnover, consumption, resources and property will continue to be reformed in order to promote economic development, China's Financial Minister Lou Jiwei said on Wednesday.

The country will widen its pilot scheme of replacing turnover tax with value-added tax (VAT) to sectors including railway transportation, postal services and telecommunications, Lou said at the ongoing bimonthly session of the National People's Congress Standing Committee, which started on Monday and ends on Friday.

Started in January last year, the trials have benefited 1.34 million enterprises and helped save businesses 50 billion yuan (8.1 billion U.S. dollars) in the first half of 2013 in 12 provinces and municipalities. From Aug. 1, VAT reforms will expand nationwide to further reduce tax burdens on businesses.

VAT refers to a tax levied on the difference between a commodity's price before taxes and its cost of production, while turnover tax refers to a levy on a business's gross revenues.

Since Aug. 1, China has suspended VAT and turnover tax for businesses with monthly revenues below 2 million yuan, benefiting more than 6 million small and micro enterprises, according to Lou.

The expansion of the trials nationwide is expected to bring structural changes to the entire tax system and bolster economic reform, said Bai Jingming, deputy director of the financial sciences institute under the Financial Ministry.

China will also impose its consumption tax on goods that could cause severe environmental pollution and over-exploitation of resources. The tax will also be applicable to more luxury goods, Lou said.

It could help curb over-consumption of unhealthy goods including alcohol and cigarettes and promote energy conservation, said Zhang Bin, who is in charge of revenue research with the Chinese Academy of Social Sciences.

He suggested applying the taxation to high-end entertainment in addition to luxury goods.

Experts also warned that taxation could increase the price of taxed goods, leading to transfer of taxes to consumers and consumption abroad to evade high taxes domestically.

As part of efforts to enhance the efficiency of energy usage, China will extend resource tax to coal based on prices instead of sales volume, Lou said. The current tax covers crude oil and natural gas.

It was expected that the tax adjustment will drive the coal industry to enhance technologies, curb overcapacity and protect the environment.

The government is also mulling whether to expand property tax trials currently in place in Shanghai and Chongqing municipalities, Lou said.

The trial imposition of the tax is part of China's efforts to cool its property market in response to public concerns over runaway housing prices.