The State Administration of Taxation (SAT) has had a remarkable year of achievements, both domestically and globally, securing SAT Commissioner Wang Jun a position in this year's Global Tax 50.
Marking its place in China's tax history, 2017 saw a series of policies be implemented to reduce the tax burden, boost compliance, raise revenue, enhance SAT relationships with taxpayers, establish tax laws and stimulate economic development.
Within the SAT, there have been some significant changes, such as establishing a cross-region tax agency in Beijing, Guangzhou and Chongqing, respectively. There has also been a drive to intensify management of large taxpayers, and ensure that large taxpayers with a certain amount of tax payment annually will be taken care of by the headquarters and provincial offices of the SAT. Moreover, a new risk management system has been established that includes a closed-loop management system with real-name tax filing.
But it is big data that is most exciting. The national tax administration information system (Golden Tax III system), with more than 300 million users and more than 50 billion records of tax filing in the system, has seen the tax administration transformed from a traditional format to one that is based on big data – an innovation that will be further enhanced in the coming year.
"With the task of revenue collection successfully fulfilled, the legal system perfected, the business tax to VAT (B2V) reform producing better results, tax administration reform persistently intensified, the tax service significantly improved and fruitful achievements in international cooperation, tax is playing a more active role in facilitating economic and social development domestically and economic governance globally," Wang tells International Tax Review.
Further, over the past year, the SAT managed to optimise taxpayer services and reduce the time required to comply with major taxes by 20% compared to the previous year, according to the 'Doing Business 2018'report published by the World Bank Group."Following the principle of 'facilitating taxpayers and standardising service', the SAT continued streamlining administration and improving its service," Wang says. "2017 was the fourth year of the 'Spring Breeze Service Project', during which the SAT took 30 new measures to optimise the taxation environment and 20 measures to compress the time required for compliance." The success of these efforts has also been noted in third-party surveys noting a rise in taxpayer satisfaction.
In addition, China's tax revenues hit a new high for the fifth consecutive year. "The SAT has been insisting on correctly handling the relationship between reducing tax burdens and collecting tax legally, not only to effectively regenerate market players but also to successfully fulfil the task of revenue collection determined by the national budget," Wang says, noting estimates that 2017 tax revenues will exceed CNY 13 trillion ($1.96 trillion), hitting another record high.
A key change that occurred over the past year was the government expediting the establishment of a legal tax system. "The SAT has taken further steps in establishing a complete, standardised and modernised legal tax system by: making preparations for the implementation of the Environmental Protection Tax Law (the first green tax law in China) from January 1 2018; contributing to the amendment of the Corporate Income Tax Law and the Tax Administration Law; joining in the legislation of the laws on resource tax, farmland occupancy tax, vehicle purchase tax and tobacco leaves tax; and participating in the amendment of the Provisional Regulations on VAT and the termination of the Provisional Regulations on Business Tax," Wang says.
Moreover, the effects of the B2V reform has exceeded expectations, he says. In July 2017,the SAT reduced the number of VAT brackets from four to three (17%, 11% and 6%), with the 13% rate being removed. "The reform not only reduced tax burdens in all fields, but also enlarged the tax base, extended industry chains, encouraged innovation and entrepreneurship, supported industrial restructuring and economic growth and promoted supply-side reform," Wang says.
China's tax efforts are not just domestic, however, with it participating in international tax cooperation and contributing to reshaping the international tax governance.
"During the G20 St. Petersburg Summit, President Xi Jinping made the commitment that China is willing to take a share in reshaping the international tax governance," Wang says. "Signing the MLI is one major step we took to meet President Xi's commitment. Working as the first vice-chair of the ad hoc group on the MLI, the SAT stepped up its efforts in the negotiation and conclusion of the MLI. I, authorised by the State Council of China, signed the MLI on June 7 2017, making China one of the first signatories. The MLI is the third multilateral agreement signed by China in promoting tax cooperation, after the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and the common reporting standard (CRS). Together with the 106 double taxation agreements and 10 exchange of information agreements China has signed with other countries/regions, the MLI forms the legal basis of China's international tax rules."
The SAT also hosted the 2017 meeting of the heads of tax authorities of Brazil, Russia, India, China and South Africa (BRICS) in July 2017 in Hangzhou. "The meeting generated eight outputs, and witnessed the signing of the Memorandum of Cooperation between the BRICS tax authorities, thus establishing the mechanism for pragmatic and effective tax cooperation between BRICS countries," Wang tells ITR. The BRICS countries make up a 23% share of global GDP and contribute more than 50% of its growth, and Wang believes that by enhancing cooperation they can contribute to a fairer, more modern international tax system.
The SAT has demonstrated its desire to help promote an inclusive and win-win development in terms of taxation based on mutual interests through its One Belt and One Road Initiative (BRI).
"While co-organising the thematic session on trade connectivity with the Ministry of Commerce of China during the 'Belt and Road Forum for International Cooperation' (BRF) in May 2017 in Beijing, I proposed to improve domestic tax systems to remove tax barriers, enhance bilateral cooperation to reduce tax burdens for cross-border investors, and deepen multilateral cooperation to facilitate capacity building," Wang says. "The proposals were recognised by the participants of the forum."
Foreign countries on the Belt and Road (B&R) have also benefited from the tax benefits offered in double tax avoidance agreements (DTAs). Priority has been given to B&R countries regarding the negotiation and signing of DTAs and, so far, the Chinese government has concluded DTAs with 54 of the B&R countries/regions, mitigating risks of double taxation for MNEs engaging in cross-border investment.
Transfer pricing (TP) has also seen big changes for taxpayers, with 2017 marking the first year for new TP filings under Public Notice (2016) 42 to regulate the filing of related-party transactions and the administration of TP documentation (TPD).
"In 2017, the SAT received 98,141 TPD filings, an increase of 22,087 compared with the previous year, when only local files were requested. While including more comprehensive and detailed provisions on TPD, Notice 42 incorporated new requirements such as analysis of value chain and location specificity, considering the characteristics of the Chinese market. Notice 42 is, for taxpayers, a requirement for quality TPD, and is also a challenge to tax authorities regarding the compliance review."
"In the coming year, the SAT will further improve the rules and focus more on providing guidance to taxpayers and tax officials to ensure quality TPD, offering strong support to TP risk management, case screening and assessment."
Looking ahead, 2018 will be a good opportunity for the SAT to deepen its reforms, improve the local tax regime, optimise the tax legal system and contribute to the 'rule of law', Wang believes. "We will maintain the achievements of the B2V reform and stabilise anticipations in all aspects. We will improve the IT system, tax credit rating system and risk management system. The efforts to optimise the tax service, enhance tax compliance, optimise the doing business environment and serve the economic growth will be continued," he says.
On international taxation, the coming year will see the SAT implement the CRS, promote the domestic ratification process of the MLI, continue the implementation of minimum standards of the BEPS project and enhance its efforts in establishing the mechanism of tax cooperation between B&R countries. "We will continue the participation in international tax governance to serve the growth of the world economy, and make our due contribution to an open, inclusive and balanced economic globalisation that benefits everyone."
The Global Tax 50 2017
The top 10 • Ranked in order of influence
6. Arun Jaitley
The remaining 40 • In alphabetic order