Premier Li urges breakthrough in VAT reform

BEIJING -- Premier Li Keqiang on Monday presided over a State Council special workshop to study relevant issues concerning the full replacement of business tax with value-added tax (VAT). The meeting heard views from relevant provinces, and made arrangements for the work ahead.

The Ministry of Finance made a report, and leading officials from 20 provinces, autonomous regions and municipalities spoke and made proposals.

After hearing the reports, Premier Li said, full replacement of business tax with VAT is an important tool to promote structural reform, supply-side structural reform in particular. It would be the most significant step of tax reduction in recent years, and would significantly ease the burden of businesses. In a way, it will contribute to building an innovative country and to improving the overall economic structure. The reform measure will lead to multiplied effects. It will serve to encourage more R&D expenditure by companies, boost demand through extended production chains, and make the environment more conducive for modern services and small and micro businesses. It will generate more jobs, and help resolve the long-standing problem of double taxation through a well-managed and consistent tax regime. The reform measure will reinforce the current performance of the economy and, at the same time, sustain momentum of its future development.

Premier Li pointed out that though positive changes are increasing in the economy, the foundation of economic performance is not yet stable. Local governments must seize the policy opportunities presented by the full replacement of business tax with VAT and major structural tax cuts. It is important to focus on economic transformation and upgrading, mobilize the initiative of companies, and expand effective investment in equipment upgrading and technology transformation. To rise up to challenges, innovative steps must be taken to develop competitive industries in light of local conditions, and energetic efforts must be made to strengthen the new economy, and foster new growth drivers while transforming and upgrading traditional ones, so as to grow the economy in both quantity and quality. While offering an enabling environment for companies, it is necessary to open up more tax sources and increase the "blood-making" capacity of local governments. As the reform is carried out, inadequate administrative intervention should be abolished, like restriction of cross-region management of companies or orders on companies to buy local products. This is a way to prevent local protectionism and segregation of the market, as well as improper competition for tax sources, which would do disservice to the development of a nationwide market. No one should act in disregard of existing policies or put up backward and overcapacity projects for the sake of mere short-term or local interests. We must act to ensure that the effectiveness of the structural reform is not weakened.

Premier Li said that to replace business tax with VAT is a task for the central and local governments alike. It is important to take a long-term and overall approach, balance the interests of various parties, mobilize the initiative of everyone, and appropriately allocate VAT revenues between central and local governments. This way, we could form synergy, overcome difficulties, and deliver reform results. Given the tight schedule and magnitude of the task, leading officials of local governments should get personally involved in the job, and finance and taxation authorities should work closely with each other. Careful preparations should be made and operational procedures cleared. While pressing ahead with the reform, problems should be addressed duly. It is imperative to ensure that the tax burdens on all sorts of sectors are truly lightened, that fiscal and tax work is carried out in a stable manner, and that governments at all levels are better able to discharge their duties. Besides, publicity on the reform needs to be stepped up to respond to people's concerns and provide a sound atmosphere for the reform.