营改增(yíng găi zēng): Replace business tax with value-added tax

The central authority has decided to expand the pilot program of replacing business tax with value-added tax, which began four years ago, to the remaining four sectors of property, construction, finance and consumer services starting May 1. The tax reform－completely replacing business tax with VAT－will involve at least 10 million companies in China, which jointly contribute 80 percent of the country's total business tax revenue.

According to the State Administration of Taxation and the Ministry of Finance, 11 percent VAT will be levied on construction and real estate companies, while a rate of 6 percent will be imposed on the finance and consumer service sectors.

Unlike a business tax, a value-added tax avoids double taxation by taxing only the difference between a commodity's price before taxes and its cost of production.

Premier Li Keqiang pointed out recently that the business-tax-to-VAT reform is key to ensuring the effectiveness of the government's proactive fiscal policy, and to pressing ahead with structural reforms, especially supply-side reforms, this year. "If this is well done, the real economy will be more vital", said Li.

By eliminating repeated taxation, the reform will unify the country's taxation system and help create a fair market environment, Li said.

The reform will alleviate the tax burden on enterprises by more than 500 billion yuan ($77.23 billion) and bolster the development of the service sector, which accounted for more than half of China's GDP last year.