China Looks to Cut, Streamline And Collect Taxes

China to Honor Foreign Firms’ Tax Breaks
Following pressure from foreign trade groups, Beijing has said it would honor tax breaks and other incentives granted to companies in existing contracts with Chinese cities and provinces.

The move, which could ease tensions between Beijing and the foreign business community, comes after the government suspended new rules on banking technology that foreign suppliers and trade groups opposed.

Foreign business groups had raised concerns in recent months that China’s latest campaign against big spending by local governments had thrown promised tax incentives and other preferential policies into doubt. They said local governments were balking at honoring tax breaks written into existing contracts, and were waiting for guidance from Beijing on other benefits such as discounted land prices.

Chinese companies are concerned about tax deals they signed as well. The Economic Observer has detailed coverage (Google translation below): 别总盯着减税啦 看看2015增税计划. Overall the plan looks like streamlining, with tax cuts on the table from the central government, but special deals for individual companies being moved aside, no doubt in part due to the potential for corruption.

Speaking of taxes: China to scrap export taxes on rare earths, aluminium rods and bars from May
China to reduce taxes on green cars and ships
China’s Slowing Economy Means Its Tax Authorities Are Coming After You
The Chinese government is stepping up its tax collection efforts in response to the country’s slowing economy. This has led the government to go after American companies with off-the-grid “employees” in China.

Chinese law allows only Chinese entities to have employees based in China. This means that if you are an American company selling widgets, you cannot hire someone in China as your employee to sell widgets for you. This means if you are an American software company, you cannot hire someone in China to do your coding or to provide your support services. But what many American companies fail to understand is that a person (as opposed to a legitimate registered business entity) who performs employment-like services for you in China is your employee because China essentially does not recognize independent contractors.

Google translation of EO article follows:

is related to the same tax concessions, within six months, the competent authorities of the caliber switched from "article 62" to "25 text", which makes Wu Peng Zhajing both happy.

Wu Peng is a real estate company's chief financial officer, when he first saw the "No. 25", the look of excitement. "According to this text, we can not only to the current tax year to come back, and more importantly, before the tax incentives are explicit, of the sun." Wu Peng said.

He said, "No. 25" refers to the May 11, 2015 "issued by the State Council on matters related to tax incentives such notification." The corresponding "No. 62" is another six months before a notice issued, the document called "State Council on clear specification of tax and other preferential policies," which released on December 10, 2014.

You can see the difference from the name, the new document has been quietly erased the "clean-up" word. And Wu Peng think, a new file every word gold.

"No. 25," the core content is the same national tax and other incentives, to put in place one by one. Among them, all localities and departments have issued preferential policies, have prescribed period, the implementation of the prescribed time limit; there is no deadline has really necessary adjustment by local governments and relevant departments in accordance grasp the rhythm, to ensure that the principles of sound a transitional period, continue during the transition period; at the same time, local enterprises have signed contracts with incentives, continue to be valid for the redeemed portion, not retroactive.

In the sensitive political and business circles view, this means tax incentives to clean up, it slowed down.

Cleanup tax incentives, was the designated Finance Minister Lou Jiwei and taxation reform is an important one, to establish a scientific development, social justice and market a unified tax system. It is "to deepen fiscal and tax reform overall program," one of the specific requirements of the tax system reform. June 30, 2014, the Politburo reviewed these programs, and clearly a new round of tax reform timetable: in 2016 the basic completion of priorities and tasks, in 2020 the basic establishment of a modern financial system.

In this backdrop, the time is quite tight, "62 text" in full swing by the end of the year issued. There is no legal basis for tax incentives to clean up the country, to develop a variety of tax incentives to exit deadline, is the core content.

The financial sector has been fighting for this for nearly half a year, has apparently still working layers of overweight.

Department of Finance, who asked the eastern coastal provinces told the Economic Observer reported last month, because of staff shortage, the provincial Department of Finance Bureau of Finance in various cities and counties also are responsible for related work, nearly 20 people, the capital city of a special pull room mansion closed, focus on cleaning up their own reporting to tax incentives.

To May, drastic changes.

From cleanup to amble

In fact, as early as April this year, "62 text" was a verbal notice to suspend. This results in March of this year's national "two sessions", it has been a sign.

At that time, one deputies from the western provinces, provincial senior State Department officials to participate in group discussion group complained that because the tax incentives to clean up the "one size fits all", nearly 1 trillion yuan of project basically stood there .

"Invested 500 million yuan more than the previous project, being implemented has not demonstrated 410, involving more than 6600 funds billion; implementation has not yet been signed 290, involving an investment of 300 billion yuan." The official said These investments because it involves the introduction of last year's "clear specification of tax and other incentives" file, and now can not be implemented.

Informed sources who participated in the panel discussions to the Economic Observer newspaper said the State Department was requested to be on this issue after the meeting immediately with the finance department for docking, and position from the top is "to correctly understand the 'tax and other incentives to clean up' the file. "

The State Department said at that time, "the document" is "No.62." While its local government investment projects most lethal thing is, the deadline for cleaning up the tax concessions.

Documents, in violation of the laws and regulations of all kinds of tax incentives should stop execution; there is no legal obstacle and has promotional value as soon as possible to implement in the country; there is a clear time frame due to stop execution, set policy termination time is not clear point in time.

The source said, the State Department called "correct understanding", in fact, very clear, "First of all incentives are there, especially located in the western region encouraged industry enterprises by 15% enterprise income tax, and to cleanup are those unlawful and unreasonable, vicious competition, unfair competition, some of the so-called preferential policies. "

These people say, objectively speaking, "No. 62 text" of local government or a certain deterrent. Project contract signed in essentially new, no longer with a variety of concessions, returned.

But exactly what is illegal, irrational policies? Who determined the nature of these policies? This has become a problem.

Of course, local governments and the Ministry of Finance wants to identify these policies by themselves, with predictable results. Many taxation in view, then 62 for the text, though the local government has taken to resist, but wait and see attitude.

"The provincial Department of Finance No. 62 for the implementation of the text, mainly to the following tax incentives for each city and county to find out all the reporting, but at the implementation level, the provincial finance department did not give a lot of pressure on cities and counties, cities and counties grassroots taken is to file hanging in the air. "The eastern coastal provinces of Finance, told the Economic Observer newspaper.

Treasury obviously want to go further. In late March, the Ministry of Finance issued a document required to be submitted in strict accordance with the requirements of the provincial tax and other incentives special clean-up report, submitted to the situation of each region and said, "2015 will be included in the local financial management Comprehensive Performance Evaluation System, as an important evaluation factors . " Thus, many local financial department emergency additional staff, began to focus on consolidation and cleaning up cities and counties reported up the following tax incentives.

However, this state lasted less than a month, "62 text" was to suspend the oral notification. Next, is the "No. 25" was released.


"No. 25" For this type of company where Wu Peng, is indeed good news.

"Now the zone still owes us about the return of nearly 10 million." Wu Peng said that as a business investment in the past, the local government pledged the equivalent of "refunded" financial support, namely the return of 5% corporate income tax, sales tax local retained part of the return of 20%, 20% of the land value-added tax refund.

On real estate, the business tax, income tax, land tax increases are the three big taxes. Wu Peng explained, which LAT good business can return to about 25%, while sales tax local retained part, the return of 20 percent is very impressive.

"But this would not be executed until last year, number '62 text 'came out, the audit is to land finance audit found that in many places is not the land finance tax return, when the zone would not dare to do this things. "Wu Peng told the Economic Observer newspaper. "No. 25" came out, Wu Peng has been in coordination with local tax department, he is particularly worried about the government's credibility problem, "We have signed the contract, and so executed, will we be able to do again, the enterprise is good. "

The same excitement as well as the investment staff of a development zone of Tianjin Zhang Yang. Earlier this year he was still running around all day for business, cash a tax subsidy to worry about, because "62 text" of the previous investment in the path of all blocked. Today, the "No. 25" again let go of these paths. "After the clean-up tax incentives, local governments can not deliver on those subsidies, but in the eyes of business, which is breach of contract." Zhang Yang said the nature of the breach, may not be staying at the local government level. Therefore, the "No. 25" was released, he agreed with hands in the air.

Zhang Yang said, the original local how to attract business? In addition to their own needs to settle down, land, taxation can be seen as an attractive aspect, and after "article 62" out of zone will be open several times, both in deliberations after the cancellation of tax incentives, how to attract businesses, "almost did not move."

The park investment in staff's view, "62 text" The intention is good, it makes sense to prevent vicious competition throughout the park. But he expressed a point of view, if the tax return is reasonable, then the tax is set unreasonable "pay 10, you can return 5, indicating the excess 5 of tax design unreasonable."


But depressing is already "tax incentives to clean up" the issue for a few months of fighting the local financial sector. Also reported the first few months to clean up the country's preferential policies, now not cleared. A provincial Department of Finance who did not expect such a result.

In fact, this is seen as a business, "savior" and "No. 25" is only a short five. The first three are the core content, including the "same national tax and other incentives, to put in place one by one," "All localities and departments have issued preferential policies, have prescribed period, the implementation of the prescribed time limit; there is no deadline yet really necessary adjustment by local governments and relevant departments in accordance grasp the rhythm, to ensure that sound principles established transitional period to continue during the transition period "and" the country has signed a contract with the enterprise in the policies remain in force; to have been honored part, not retroactive. "

Above the provincial Department of Finance, told the Economic Observer newspaper, which is the previous three basic tax incentives were a "legalization" after previously enjoyed can also enjoy, not previously on the table, placed in the table, put in the sunshine.

This means that tax incentives to relax the threshold established by local discretion or autonomy in increasingly high between the tax authorities and businesses in terms of tax warehouse, with a communication or consultation room.

The Article provides that all localities and departments to develop the future introduction of new incentives, in addition to laws, administrative regulations, the provisions of existing transactions, involving taxation or central approved the establishment of non-tax revenue should be reported to the State Council after the approval of the Executive; other Executive approval by the local government and relevant departments, including the general arrangements for expenditure shall not be paid by enterprises linked to tax and non-tax revenues.

"This means that local governments in the implementation of the provisions of the Enterprise refunded, not the original text number '62 'so strict, that is, back to the previous." The taxation source told the Economic Observer newspaper.

The Article is written, "No. 62 text" provisions of special clean-up work, to be performed in the future after further deployment. Said Department of Finance who are worried, after a pause and then start, it is more difficult.

The person involved in group discussions "two sessions" told the Economic Observer reported, so far, the introduction of "the 25th article," Is the macroeconomic conditions of a compromise, mainly due to the economic downward pressure on local economic development momentum worrying and clean up any connection with the local government tax credit issues are intertwined together.

Under pressure

Net tax tax office in Dongsheng, president of the view that the importance of "article 62" is self-evident, but in the current economic situation, "the 25th article," have some positive effect, it is an alternative, It reached a disguised pass between the 25th text "tax cuts" to stimulate the economy.

After all, just past the first quarter, China's macro-economic environment is not optimistic.

April economic data showed that China's external demand to improve the limited space, the greater the downward pressure on domestic demand. Fixed asset investment growth to 12%, compared with January - down 1.5 percentage points in March, down 5.3 percentage points. More worrying is the primary industry, secondary industry and tertiary industry, the growth rate fell across the eastern Midwest.

CSC chief analyst at the macro-bond research team Huang Wentao believes that the three main sectors, the manufacturing sector to the production stage, in the context of overcapacity in manufacturing investment is still in the deceleration zone. Nationally, real estate to the inventory pressure is still large, although a second-tier cities sales pick up, but the real estate development company purchased land area fell by 32.7%, a decline of 1 - expanded 0.3 percent in March, the speed is very indicative of future real estate investments difficult to stabilize. Infrastructure investment to play the role of the main force of steady growth, up 20.4%, but the growth rate from January - down 2.7 percentage points from March.

And investment in local projects increased by 12.2 percent, down 1.3 percentage points lower than the growth rate, down 5.6 percentage points. This should be from the local financial difficulties and financial constraints. More importantly, the development of China's economy is gradually changing. Local government no longer to GDP Hero, energy saving pressure, while facing financial constraints and financing difficulties.

Many economists fear that without strong policy arrangements, the pace of investment in fixed assets is more difficult to stabilize. Downward pressure coming months, China's economy is still large. Including the deputy director of the Development Research Center of the State Council, Liu Shijin, including many scholars expected, GDP growth in the second quarter and the third quarter will be lower than the first quarter, may be reduced to 6.8-6.9% or even lower.

And to steady growth, the enthusiasm of local investment is obviously still need some incentive, which is also reflected in the revenue. This past April, the local level in the general public budget revenue 721.7 billion yuan, an increase of 8.2%, the same caliber rose 2.1%, although the central revenue increased, the central general public budget revenue 628.5 billion yuan, an increase of 8.1%, but the central growth in non-tax revenues because some financial institutions increased profits turned over the month; the central non-tax revenue 37.7 billion yuan, an increase of 69.5%.

In this case, the "No. 25" was released meaningful. A provincial Department of Finance source said, "No. 25" and "62 text" behind China's economy in the face of downward pressure, in order to ensure economic development to make concessions.

May 11, 2015 "No. 25" was released, which means that once again the center of steady growth and more initiative to local governments. During the two sessions this year, a person familiar involved in group discussions on tax incentives to clean up, "said senior believes that this issue should be based on the principles of the main place to grasp, especially in the western region of the government, he has the ability to identify and to control capacity. "

However, sources who asked not signed, told reporters, "No. 25" was released to stimulate future economic force remains to be seen, the file only affect the stock, which is allocated between the original amount of the country, for local The economy has a certain role.

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