Shanghai, as the first pilot city in China, has carried out the VAT reform for 5 years since Jan 1, 2012. SPEA Prof. Hu Yijian and his team spent half a year, analyzed and assessed the implementation and performance of the 5-year reform in Shanghai by making full use of big data and the Internet technology, and finally formed ‘The Five-year Pilot Performance Analysis Report on Shanghai VAT Reform’, which unveils ‘the small bill’ of the company’s tax cuts in detail and ‘the large bill in economy’ that the reform is in favor of stimulating new energy, conserving new tax sources, and helping the transition in Shanghai.
Shanghai Plays Leading Role in VAT Reform
With our national economy in a crucial period of accelerating the transition in the development methods, introducing the VAT into the service industry, will eliminate double taxation inside the service industry and between the service industry and manufacturing industry, being not only the inevitable choice to improve our tax system, but also the need to prosper the development of modern service industry and conserve the new energy to stimulate the economic development. Shanghai, as VAT reform pilot since 2012, played a leading role and crucial model in the full implementation of our nation’s VAT Reform.
Shanghai VAT reform cuts tax nearly 200 billion in 5 years
The reform has eliminated the double taxation, and formed the complete tax deduction chain. The effect is mainly reflected in lightening the burden in the industry, increasing the tax reduction, and decreasing the tax burden rates etc. Since the implemented in 2012, the Shanghai VAT Reform has totally cut tax 196.73 billion during the 5 years, with a increasing trend year by year. With the deepen of the reform, the tax-cutting effect shows up in progress and the total effect is remarkable.
The VAT Reform Stimulates the economic development from the macro perspective
The reform drives the increase of investment, consumption and net export and also conforms to the New Normal status of economic development, being one of the important measures to implement the supply-side structural reform effectively. Due to the avoidance of double taxation, the reform will alleviate the industry tax burden and eliminate the institutional barriers in the service industry, which will make for the service industry development in Shanghai and form the industrial structure focused on service economy. After 2012 pilot implementation in Shanghai, the economic structure has been improved. From 2011 to 2016, the proportion of the first industry is decreased to 0.4% from 0.7%; the proportion of the second industry is decreased to 29.1% from 41.3%; the proportion of the third industry is increased to 70.5% from 58% and increased year by year.
VAT Reform Stimulates the energy of micro-entities and prospers the enterprise transformation and upgrading
The VAT of enterprises purchasing the equipment and real estates is allowed to be deducted after the reform, which will stimulate the equipment renewal and purchase of commercial real estates. The reform not only decreases the tax burden, but also extends the industrial chain, which will prosper separation development of the auxiliary body from the main body, promote the enterprises bigger and stronger, and drive the enterprise innovation and transformation development. Especially that applying the 3% tax rates to small-scale taxpayers will in favor of cutting the tax burden of small companies.