From News, page 3, issue no. 347, December 24th, 2007
Translated by Zuo Maohong
Original article:[Chinese]

Chinese Minister of Finance Xie Xuren has outlined the framework for upcoming taxation reforms in 2008.

Among the reforms include the revision of Provisional Regulations on Value Added Tax (VAT) and the Individual Income Tax Law, which has undergone a revision two years ago, is to be adjusted yet again.

Some new taxes, such as environmental tax and social security tax, have also been raised for the first time at the annual National Finance Conference chaired by Xie on December 19, 2007.

In addition, Resource Tax revision and the upcoming new Enterprise Income Tax Law are also keenly anticipated.

Value Added Tax: The First Adjustment Ever
VAT is considered one of the priorities for tax policy makers in 2008. VAT will undergo revision for the first time since it was promulgated 14 years ago.

"The revision is likely to include input VAT deductions," says Ni Hongri, deputy director of Development Press of China specializing in finance and taxation.

At the recently concluded conference, Xie had mentioned that reforms in VAT would only be carried out on trial in industrial bases in the northeast and central China.

Commenting on the announcement, Ni agrees that a nationwide implementation of the reform would be hard to realize. He believes that the government fears major changes in VAT would further stimulate over-investment, thus jeopardizing macro intervention measures to calm an overheating economy.

"The government's main concern is not a decrease in tax revenues. Judging from the outcome in regions that have been introduced to VAT on trial, the reduction in revenue is not as huge as initially anticipated," Ni adds.

The existing Provisional Regulations on Value Added Tax was promulgated by the State Council on December 13th, 1993 and took effect on January 1st, 1994.

As the country progresses through opening-up policy, new problems arise and the VAT regulations need an overhaul to better fit present circumstances.

"Laws on taxes in China lack stability and endurance in nature. Many major taxes, such as VAT, are guided by provisional regulations only. This is no longer effective or suitable," says an academic who wishes to remain anonymous.

While preparing for the revision of the provisional regulations, the standing committee of National People's Congress (NPC) is also working on VAT legislation. However, whether to write such a law will be decided by the annual NPC in March. If approved, a detailed five-year legislation plan is to be studied out.