China: China’s tax policy priorities are set for 2017
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China: China’s tax policy priorities are set for 2017


Khoonming Ho

Lewis Lu

The 5th session of China's 12th National People's Congress (NPC) commenced on March 5 2017 and several senior government officials highlighted a number of tax policy priorities for 2017 in addresses to the NPC and in press events on the sidelines of the NPC meeting.

The Chinese Premier Li Keqiang set out a number of these matters in his 2017 Government Work Report on the opening day of the NPC meeting:

  • Expanding the number of small enterprises that can benefit from preferential corporate income tax (CIT) treatment. Under existing CIT rules, small enterprises with annual taxable income under RMB 300,000 ($43,000) may pay CIT on 50% of their total income at a rate of 20% (standard CIT rate is 25%). This means an effective tax rate of 10%. The government intends to expand the number of enterprises covered by this special tax treatment by including small enterprises with taxable income under RMB 500,000;

  • Enhancing the research and development (R&D) expense super deduction for certain high-tech small and medium-sized enterprises (SME). Under existing CIT rules, R&D expenses incurred by a Chinese enterprise can give rise to an additional 50% bonus deduction for CIT purposes. This is above and beyond the deduction of the amount of the expense itself. The bonus deduction for certain high-tech SMEs will now be lifted from 50% to 75%;

  • Reducing and standardising the "non-tax" fiscal burdens falling on enterprises, including the various local government fees and mandatory contributions to local governmental funds. These impositions, which vary greatly across China in terms of rules and rates, are considered to raise the enterprise fiscal burden in China significantly above the statutory 25% CIT rate. This reform will be coupled with continued reductions to employer and employee social security contribution rates, and consolidation of the existing levies;

  • Streamlining VAT rules, including reducing the number of VAT rates from four to three (the 13% rate is considered likely to be abolished). The State administration of Taxation (SAT) made a parallel announcement, also at the time of the NPC session, to further add that preferred transitional VAT treatments for real estate projects might be extended to cover further projects underway at the time of the 2016 VAT reform, and that the SAT would also seek to make better use of tax credit risk rating for VAT taxpayers going forward; and

  • New arrangements for the division of tax revenues between the central and local levels of government will be put in place.

The Minister of Finance Xiao Jie, the chairman of the NPC Standing Committee Zhang Dejiang and spokesperson for the NPC Fu Ying all made additional clarifications:

  • Continued development of a new individual income tax (IIT) system. This would tax many types of income (e.g. wages and salaries, royalties, etc.) on a comprehensive basis with an annual calculation and payment, replacing the existing monthly approach, and would allow a variety of new tax deductions alongside adjustment of standard tax allowances. Certain types of income, such as disposal gains on the transfer of property, would continue to be taxed on a separate income category basis. Also in relation to IIT, a parallel finance ministry announcement noted that an exemption-exemption-taxation (EET) system for private pension plans, of the sort in use in many other countries, is under development and would be integrated into IIT reforms;

  • The long awaited real estate tax (RET) will not be put forward for NPC legislative approval in 2017, although it remains a part of the 12th NPC's five-year plan;

  • Continuing an ongoing initiative, further existing State Council regulations on taxation will be placed on a statutory basis as NPC-passed laws. With the tobacco tax and vessel tonnage dues both set for legislation by the NPC, this will increase the number of Chinese tax laws to eight; and

  • The long awaited revision of the tax collection and administration law will be put forward for review in 2017 based on the newly released 2017 tax legislation plan of the State Council.

Khoonming Ho ( and Lewis Lu (

KPMG China

Tel: +86 (10) 8508 7082 and +86 (21) 2212 3421


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