III. During the perfecting stage of socialist market economy
In the following 10 to 20 years, with the gradual perfection of the socialist market economy, and in respond to the changes of both domestic and foreign economies, China put forth a new round of taxation reform focused on the transformation of administrative fees into taxes, merger of income tax on domestic enterprises and on foreign enterprises, and the transformation of value-added tax.
Transformation of administrative fees into taxes refers to transforming some charging items with tax characteristics into tax. For instance, when vehicle purchase tax became effective on a nation-wide scale on January 1, 2001, the vehicle purchase surcharge was repealed. In 2006, agriculture tax was official abolished throughout China.
2. Merger of income tax on domestic enterprises and that on foreign enterprises. On March 16, 2007, the newly enacted Enterprise Income Tax Law put an end to the situation where the legal system had different regulations on tax collection for domestic and foreign enterprises, gradually building up a standardized, unified, fair and transparent enterprise income tax legal system.
3. Reform on a small number of taxes such as vehicle and vessel usage tax and urban land usage tax. On January 1, 2007, Provisional Regulations of the People's Republic of China on Vehicle and Vessel Tax and Provisional Regulations of the People's Republic of China on Urban Land Use Tax came into effect. In the latter regulation, foreign invested enterprises and foreign enterprises were also included as the taxpayers of urban land usage tax.
By the end of 2007, the number of tax categories of China’s current tax system had been further reduced to 18, making the tax system much more standardized and unified.
Since the 18th National Congress of the CPC, continuing progress has been made in deepening of taxation reform. Take value-added tax for instance, a series of seven-step reform measures were carried out successively. In 2017, the business tax, which had the abuse of duplicate taxation, was officially replaced by value-added tax. To continually reduce the burdens on enterprises and to further perfect the tax system in China, the reform on value-added tax has never stopped.
Since May 1, 2018, China once again lowered the tax rate of all three brackets of value-added tax, from the former 17 percent、11 percent、6 percent to 16 percent、10 percent、6 percent respectively. Meanwhile, it unified the standard for small-scale taxpayers in value-added tax collection, and promised a one-time refund of the remaining taxable amount after deduction of the tax amount to qualified and grid enterprises in advanced manufacturing industries such as equipment manufacturing, and modern service industries such as research and development.
The implementation of reform on value-added tax reduced the overall tax on real economy and promoted the growth of advanced manufacturing and research and development services, and was thus an important move to deepen supply-side reform and improve the business environment. It’s estimated that by the end of 2018, the amount of reduced tax in the whole year would have exceed 400 billion yuan ($58.32 billion). And all enterprises, be they State-owned, private-owned, domestic or foreign, can share the benefits brought by the reform fairly and equally.
Individual income tax will also go into force in 2018. By raising the threshold for individual income tax exemptions and adding special expense deductions for items such as children’s education, the tax burden of the working class is to be reduced to a reasonable extent.
Legislation pertaining to real estate tax has been put on the agenda. In the future, real estate tax on industrial and commercial real estate and individual housing will be collected according to their estimated value and tax burdens from construction and transactions will be reduced to a certain extent. Together, this will facilitate the establishment of a modern real estate tax system.
In 2018, the first green tax in China – the environment protection tax - came into effect and will enhance environmental protection through taxation leverages.
China’s tax collection and administration system is also undergoing a deepening process. The State Council has declared the unification of state tax and local tax, which will save enterprises’ time and energy in paying taxes.