1. What is the most significant change to your region/jurisdiction's tax legislation in the past 12 months?
A package of tax cuts announced by Premier Li Keqiang in early March is probably the most significant change to Chinese tax legislation in the past 12 months. The tax cut is estimated to be around 800 billion yuan in 2018. With objectives to stimulate the economy and build up a friendly business environment, the package includes various measures such as the reduction of value-added tax rates and considerable expansion of the scope of small companies eligible for half-rate reduction of income tax.
2. What has been the most significant impact of that change?
The introduction of the package has not only alleviated the tax burden of businesses and individuals, but also made it much easier for taxpayers to access various income tax incentives. Previously, companies had to submit qualifying documents to tax authorities to prove their eligibility before they were allowed to benefit from the relevant incentives. Now, they can enjoy the incentives without submitting documents, provided they have the relevant proofs of eligibility available at their business premise for any future inspections from tax authorities.
3. How do you anticipate that change impacting your work and the market moving forwards?
While, on one hand, the new streamlined approach makes tax incentives more accessible to taxpayers, the potential downside is that tax authorities are expected to enhance the post-filing inspections of incentive eligibility, raising the risk of taxpayers being challenged in the future. Deloitte China has seen growing concern from taxpayers about this risk, especially for areas where eligibility guidance is still limited, and we have increasingly been requested to assist clients in determining whether in our view they qualify for the incentives and preparing relevant supporting documents.
4. How has this changed the way you offer tax advice?
Given that taxpayers now have more responsibility for determining whether they qualify for the tax incentives, we have been reminding clients of their responsibilities and of the need to study the tax regulations and prepare the documents to support any incentives claimed. For areas where guidance is limited, we recommend a sound technical analysis plus appropriate communications with tax authorities as an important way to manage risk and lower uncertainty. We have observed a market need for tax advisors who take a more proactive and hand-held approach to establishing the taxpayers' entitlement to tax incentives, which requires a combination of advisory services together with assistance in implementation.
5. What potential other legislative changes are on the horizon that you think will have a big impact on your region/jurisdiction?
There are a number of new tax laws or amendments to existing legislation being drafted or discussed now, covering diverse areas including the Individual Income Tax Law, the Value-added Tax Law, and the Law on Administration of Tax Collection.
6. What are the potential outcomes that might occur if those changes are implemented?
The amendments to the Individual Income Tax Law might come into effect on January 1, 2019. The amendments would bring fundamental changes to the landscape of Chinese individual income tax. Examples include a new 183-day test which would make it much easier for a foreign individual to be considered a Chinese resident, and a new annual filing requirement that would apply to all resident individuals, and the annual tax settlement could become more standard. In addition, anti-avoidance rules, which are expected to be introduced for the first time for Chinese individual income tax.
For Value Added Tax (VAT), the existing multiple tax rate system (i.e. 16%, 10% and 6%) might be further streamlined by consolidating two of the rates.
The amendments to the Law on Administration of Tax Collection are expected to formally introduce an advance ruling system into Chinese taxation.
7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Yes. We anticipate growing requests from businesses and individual clients to help them understand the impacts of the new laws, review their current tax positions, identify opportunities and make action plans for the changes. Specifically, the amendments to the Individual Income Tax Law may stimulate the market demand for compliance services from both employers and individuals.
We are also hoping that the introduction of advance ruling system and amendment to the Law on Administration of Tax Collection will help the taxpayers have more certainty about their tax position in China and give them judicial rights for handling tax disputes.
8. How are issues surrounding the taxation of the digital economy affecting your jurisdiction?
The taxation of the digital economy has been actively discussed in the academic area and the government is also studying the relevant issues. However, there have not yet been any announcements of plans to change the existing tax rules in this area.
Deloitte China, Country Leader for Tax & Legal
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