THE tax burden on international enterprises operating in China will be lower as a result of the landmark value-added tax (VAT) reform across all industries that previously had a business tax, which went into effect May 1.

    Experts said that while businesses in many service sectors will directly benefit from it, manufacturing firms will be better off as their purchased services are now deductible.

    In particular, businesses in the middle of a long supply chain will be the biggest beneficiaries, said Li Wanhai, a businessman based in Henan Province.

    Gao Liqun, head of Deloitte’s indirect tax group in eastern China, said foreign businesses operating in China will generally have a lower tax burden and those outside China may profit from the reform as they are able to negotiate better deals when doing business with Chinese firms.

    Foreign buyers of Chinese services and products may negotiate better prices as the lighter tax burden will lower the costs of their suppliers, and certain cross-border services are subject to zero rate, he said.

    “Even foreign suppliers of services to Chinese companies may get opportunities to negotiate better deals, as their Chinese buyers can list such purchased services as deductibles,” Gao said.

    Gao said many manufacturing firms that had been paying VAT are big winners, too, as the services they purchase, such as financial services and real estate rental and sales services, are now deductibles.

    Likewise, Internet startups will be enjoying more deductibles also. Hotel expenses, for instance, now fall in the VAT category, meaning that the managers’ hotel fees and air tickets from business trips are deductible.

    The overall tax costs for products and services are bound to drop after the reform, making them more competitive. The producers of such services and products, therefore, will have more resources to invest in research and development.

    Many entrepreneurs are thrilled at the news of the VAT reform. Cheng Yue, an investment director at InnoSpring, an incubator service provider, said the reform is beneficial to startups and their service suppliers.

    InnoSpring provides services such as mentoring, workshops, and access to venture capital, angel investment and physical space.

    “Companies, startups in particular, hesitated to purchase services. The VAT reform encourages outsourcing of services, reducing the burden on startups and allowing the service industries to grow,” Cheng said.

    (Xinhua)