China’s government looks to simplify VAT for small entities

Chinese lawmakers are considering changes to value-added tax law to simplify the systems for smaller companies, as part of the government’s efforts to further improve the country’s business environment.
Draft proposals have been submitted to the Standing Committee of the National People’s Congress, China’s top legislature, for a second reading. The first reading took place in December 2022.
Under the proposals, entities with annual taxable sales revenue under 5 million yuan (£550,000) will be categorised as small-scale value-added tax payers. The draft said that the State Council can adjust the definition of such taxpayers based on social and economic development planning needs.
Details of simplified tax calculations and value-added tax refunds are also included in the draft. Value-added tax accounts for around 30% of China’s tax revenue.
The draft could help ease the burden on business entities and bolster market expectations, said Li Xuhong, a professor at the Beijing National Accounting Institute.
Meanwhile, China’s four-year extension of the individual income tax policies for foreign nationals has been described as “very positive news” by the European Union Chamber of Commerce in China.
The extension means that certain expenses, such as housing, children’s education and language training, will continue to be exempt from taxation.
“Announced on the margins of the start of the new school year, it will be extremely welcome news for families that have made the decision either to come to or remain in China,” the chamber said in a statement.
The move is part of the State Council’s policy to create the best environment for foreign investment.

First ‘competitive indicator’ published
The inaugural ‘China Company Competitiveness Indicator’, published by the International Institute for Management Development (IMD), reflects the country’s thriving digital technology landscape and its leading role as a global innovation powerhouse, said IMD’s China CEO Mark Greeven.
The index is an initiative launched by IMD China to measure, on a sector-by-sector basis, how competitive companies are in the Chinese market.
Greeven also noted that a mix of domestic and foreign companies are top-performing ones in the Chinese market.
According to IMD, the results are based on eight main factors: business success, business robustness, investors’ expectations of future growth, research and development efforts, early innovation results, business diversity, customer engagement, and environmental, social, and corporate governance (ESG).
Greeven also highlighted China’s role as a driver for global competitiveness and innovation. He said many domestic companies in China are “real innovation powerhouses” and said China’s role in innovation can “no longer be ignored”.
He added: “Whether it is inside China, or outside China, we can learn a lot from the innovation landscape and ecosystem in China. I hope that this becomes a driver of growth for multinationals. I’m very, very optimistic about that.”
Greeven said that for foreign multinational companies “finding inspiration and collaborating with local domestic companies” will be key to their success and help them tap into China’s markets.
“What we can learn from some of the Chinese innovators is the concept of autonomy to the front line: getting as close as possible to the consumer and the customer,” he added.
Greeven said that the best industries to invest in in China are those related to retail. “But of course, industries like healthcare, automotive, mobility, and sustainable technology are the top investment areas,” he said.
Greeven said in the past couple of years, innovation investment in China by both domestic and foreign companies has been increasing. “We have a very interesting and important innovation link that connects us all across the world,” he said.
Founded by business executives, IMD is an independent academic institute based in Lausanne, Switzerland, and Singapore. It opened a hub in Shenzhen, China in January 2023.