Research Of ‘To Replace The Business Tax With A Value-added Tax' On The Bank Industry In China And The Solutions

On March 26 2016,a new taxation policy was released:“Notice of the Ministry of Finance and the State Administration of Taxation on Comprehensively Promoting the Pilot Program of Collecting Value-Added Tax in Lieu of Business Tax”.The ValueAdded Tax(VAT)rate and rules were announced for finance and other sectors in China that have yet been included in the pilot program and were still with business tax in operation.The tax rate has been increased from 5% under the business tax framework to the current 6% under the VAT framework,with effect from 1st May,2016.The new VAT has been in full swing since then,with finance sector being in the transition stage from business tax to VAT.In the past,the majority part of the turnover tax in the finance industry has been the business tax.Comparing to VAT,there are intrinsic drawbacks with business tax,which has resulted in some common issues such as double taxation,improper basis of tax assessment,and heavy tax burden etc.These issues have further resulted in inefficientoperation and lack of competency as we can see in China's finance industry today.Comprehensively promoting of collecting VAT in lieu of business tax has a significant importance in deepening the economic restructuring.This policy shall enforce the VAT across China covering all industries and corporations.Fundamentally,it will eliminate double taxation,and meanwhile ensure the integrity of the VAT credit chain.In this thesis,the impact of collecting VAT in lieu of business tax on the banking sector has been analyzed in details.After the migration to VAT framework from business tax,the majority part of the turnover tax will be value-added tax instead of business tax.The subsequent moves will be on a set of tax-related matters including taxation scope,tax computation method,and invoice management and so on and so forth.Such changes shall impose critical impacts on domestic banks in China,for instance tax administration,financial system,and tax burden.Taking a state-owned commercial bank as an example,we have looked into the change in its tax burden.Based on the actual VAT collected from this bank in 2016 Quarter 2,it's observed that the tax burden is actually heavier with VAT,which is due to the fact that the banks deductible input tax is low.In view of the existing issues in the banking sector,we have proposed below:Bank management shall improvetheir management internally,study the tax policies thoroughly,and ensure a bettercoordination.Managers shall also bring the daily operation and management to a greater level,while enhance the risk control and proactively develop banks' intermediary business with a much higher operation efficiency.Tax management should be improved and more comprehensive and healthy tax management system should be established.A new tax management plan need to be developed based on VAT.Bank management shall also enhance the communication with tax authorities regarding practical tax matters.