VAT replacing business tax

Shanghai Skyline

Beijing is likely to be the second city in China after Shanghai to start levying value-added tax (VAT) on transport and certain modern service industries on September 1, the US auditor Ernst & Young (E&Y) said in Beijing Thursday, citing an insider who participated in the municipal policymaking.

The State Council said Wednesday that it would expand the pilot reform of replacing business tax with VAT at an additional 10 areas between August 1 and the end of the year, as part of the government’s efforts in structural tax reduction.

The 10 places include Beijing, Tianjin municipalities, Jiangsu, Zhejiang, Anhui, Fujian, Hubei and Guangdong provinces, as well as the cities of Xiamen and Shenzhen, the Xinhua News Agency reported Wednesday, citing a State Council decision.

E&Y predicted that because of a lack of infrastructure, only Beijing, Tianjin and Jiangsu and Anhui provinces would be able to complete such a reform by the end of the year, with Beijing being the first among the 10 places.

The local governments “would not initiate a pilot program if they’re not ready. There can easily be over 100,000 enterprises included in a (VAT) trial in Shanghai or Beijing. Without (deployment of) VAT-control invoice machines, these enterprises wouldn’t know what to do (with the trial),” said Liang Yinle, a partner at E&Y, who has advised the State Council on VAT reform.

Because of the complexity of VAT, Liang said in Shanghai’s case, the local government carried out massive training for the companies. Meanwhile, the VAT reform involves transferring taxation from local taxation bureaus to the local offices of the State Administration of Taxation, which needs time to coordinate, he said.

“Shanghai was the first city to try the VAT reform, where the business tax has been substituted by VAT with an 11-percent VAT rate on the transport sector and a 6-percent rate on the modern service industry,” Xinhua reported.

Liang noted that the VAT reform would not stoke up inflation as it currently focuses on the business-to-business sectors, and it could lower firms’ tax burdens in production because it avoids cascading effect of taxes, or tax on tax levy.

By the end of March, 129,000 companies in Shanghai had participated in the VAT reform, and the tax burden for the involved small firms was cut by about 40 percent, Shanghai-based eastday.com reported in May.

But the companies may get to pay more taxes on their increased profits, as VAT reduces the costs of production and eliminates the room for them to hide profits illegally, Liang said.

via VAT pilot rollout may be delayed – People’s Daily Online.

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Cash expands by $187b in untaxed offshore accounts

Image representing Pfizer as depicted in Crunc...

U.S. companies led by General Electric Co. (GE) and Pfizer Inc. (PFE) stockpiled an additional $187 billion in untaxed overseas profits over the past year, boosting their offshore holdings by 18.4 percent, according to data compiled by Bloomberg.

The 70 U.S.-based companies studied hold $1.2 trillion in profits around the world. GE and Pfizer have built up the most money outside the U.S., at $102 billion and $63 billion respectively, according to securities filings. Apple Inc. (AAPL), Google Inc. (GOOG) and Microsoft Corp. (MSFT) were among the companies that increased their accumulated overseas profits by more than 40 percent in 2011.

As U.S.-based companies expand globally, they keep profits overseas, legally out of the reach of the Internal Revenue Service. Lawmakers from both political parties point to the stockpiling as a symptom of a failed corporate tax system, even while they remain deadlocked over whether the U.S. should impose higher or lower taxes on its companies’ global profits.

“You’re seeing more and more business go on overseas, because that’s where an increasing amount of the global purchasing power is,” said Matt Miller, director of public policy at the Business Roundtable, a Washington-based association of chief executives at large companies that backs lower taxes on overseas profits. “We need to get a competitive tax system that is not antiquated and has all the complexities we have today.”

via Cash Horde Expands by $187 Billion in Untaxed Offshore Accounts – Bloomberg