China's current tax framework was put in place after the tax reform in 1994 to meet the needs of the socialist market economy. Since the beginning of 21st century, the Chinese government has made a series of adjustments and improvements to the tax system, which has guaranteed the government's revenue and contributed to the country's rapid economic growth.
Agricultural Tax, which had existed for over 2000 years in China, was abolished.
Urban Land Use Tax System for domestic enterprises (DEs), foreign enterprises (FEs) and individuals were integrated.
Enterprise Income Tax systems for DEs and FEs were integrated.
◆ Real Estate Tax systems for DEs and FEs were integrated.
◆ Fee-to-Excise Tax conversion on refined oil products was adopted.
◆ VAT transformation from a manufacturing-oriented to consumption-oriented system was completed. Enterprises were allowed to deduct the input VAT on purchasing machinery and equipment from their output VAT.
Urban Maintenance and Construction Tax systems for DEs, FEs and individuals were integrated.
Business Tax to VAT Pilot Reform was carried out in the transportation sector and certain modern services sectors in several regions.
Business Tax to VAT Pilot Reform was extended to other parts of China.
Business Tax to VAT Pilot Reform was further extended to the sectors of railway transportation, mail and telecommunications.
Progress was steadily made with the Business Tax to VAT Reform and Excise Tax Reform. Resource Tax was reformed to be levied on an ad valorem basis.
Business Tax to VAT Pilot Reform was extended comprehensively to cover all goods and services. Resource Tax Reform on an ad valorem basis was enlarged in its coverage. Environmental Protection Tax Law of the People's Republic of China, as adopted at the 25th Session of the Standing Committee of the Twelfth National People's Congress of the People's Republic of China, came into force on January 1, 2018.
VAT rates were simplified with the rate of 13% abolished, which led to a structure of VAT with 17%,11% and 6%. The Provisional Regulations of Business Tax of the People's Republic of China was abolished. The Provisional Regulations of VAT of the People's Republic of China was revised. The Corporate Income Tax Law of the People's Republic of China was revised to give further support to donation for public welfare. The scope of pilot reform on Water Resource Tax was enlarged to 9 provinces (autonomous regions, municipalities directly under the Central Government) including Beijing. The Enforcement Regulations of the Law of the People's Republic of China on Environmental Protection Tax was issued. The Law of the People's Republic of China on Tobacco Leaf Tax and the Vessel Tonnage Tax Law of the People's Republic of China were approved by voting during the 31st Session of the Standing Committee of the 12th National People's Congress and will take effect from July 1, 2018.
With the VAT reform further pressed ahead, the original 17% and 11% tax rates were adjusted to 16% and 10% respectively to form a three-level VAT rate schedule of 16%, 10% and 6%. By raising the threshold of small-scale VAT taxpayers to annual turnover of no more than five million RMB, qualified general VAT taxpayers were given the right to re-register as small-scale taxpayers by the end of 2018. Companies in the advanced manufacturing industry like equipment manufacturing and modern services industry like R&D and power grid companies with outstanding input VAT not credited in a specified tax period are eligible for refund on a lump-sum basis.
The original 16% and 10% VAT rates were adjusted to 13% and 9% respectively to form the current three-level VAT rate schedule of 13%, 9% and 6%; the scope of input tax deduction were expanded to include one-off deduction of supporting real estate, deduction of domestic passenger transport services, and additional deduction of production and living service industries; a VAT rebate system were formally established to refund eligible taxpayers their incremental VAT allowance. Preferential tax reduction and exemption policies for small and micro businesses were implemented, and tax incentives for small and micro businesses were increased.
On January 1, 2019, the Regulations for the Implementation of the Individual Income Tax Law of the People's Republic of China was officially implemented. On September 1, 2019, the Law of the People's Republic of China on Farmland Occupation Tax officially came into force. On August 26, 2019, the 12th Session of the Standing Committee of the 13th National People's Congress deliberated and adopted the Law of the People's Republic of China on Resource Tax, which will come into force on September 1, 2020.
From March 1 to June 30, 2020, the first annual settlement of general income of individual income tax has progressed smoothly, marking the establishment of a comprehensive and classified individual income tax system in China. On August 11, 2020, the 21st session of the Standing Committee of the 13th National People’s Congress deliberated and adopted the Law of the People’s Republic of China on Deed Tax and the Law of the People’s Republic of China on Urban Maintenance and Construction Tax, which will come into force on September 1, 2021.