OPINION

The Throes of Replacing One Tax With Another

The pilot plan of replacing the business tax with a value-added tax is now being widely promoted. Recently, the State Council decided to expand the pilot plan to include the transportation industry and some modern service industries nationwide. Railway transportation, postal services and telecommunications could possibly be included in the plan, which is set to go into effect by August 1.

The reform has hitherto achieved some results, such as reduced taxes on most enterprises, especially small-scale taxpayers, benefiting the service industry and related manufacturing enterprises.

However, in the process, some enterprises have faced an increased tax burden. Statistics suggest that in Shanghai, the pilot city, 9.2 percent of enterprises had suffered from higher taxes by February, and local governments have also raised concerns over future declines in tax revenue.

Tax reform is always accompanied by difficult change, and it's natural for some enterprises to experience a period of pain. The question is how to treat the pain and get rid of it as early as possible.

The increased tax burden has once been reported by transportation enterprises in Shanghai. Investigations later found that the replacement cycle of fixed assets is the root cause. Theoretically speaking, if motor vehicles—the main fixed assets of transportation fleets—are replaced every four years, the tax burden would increase in the initial stage of replacing the business tax with a value-added tax. As investments in vehicle replacements are gradually carried out, enterprises would increasingly benefit from input tax deductions brought by a value-added tax. The effect of tax reductions would be clearly felt when going through the four-year period.

In addition, a value-added tax can eliminate double taxation, extend the deduction chain to secure fair competition, encourage qualified enterprises to undergo specialization and renovation, and enhance core competitiveness, with hopes of further benefiting the economy, improving cost performance, stimulating consumption and boosting domestic demand. It would also spark a whole range of reforms on the financial and taxation systems. To shore up the replacement plan, enterprises should comply with its inherent logic, tap into their potential in specialization and subdivision and try to expand through innovation and upgrading. Local governments should perceive its role in fostering financial resources and fueling economic growth and providing enterprises that are in the midst of the change with interim solutions. Enterprises that cannot immediately benefit from the reform should also take an initiative to adjust their development pattern and strategic planning.

If enterprises and local governments can courageously commit themselves to the replacement of the business tax with a valueadded tax, the throes will evolve into a drive to push enterprises to renovate and upgrade their technology and push local governments to do more in the new environment.

This is an edited excerpt of an article by Jia Kang, Director of the Research Institute for Fiscal Science at the Ministry of Finance, published recently in People's Daily

THE MARKETS

Weed Out Fakes

China's e-commerce giant Alibaba will work with government agencies to eliminate counterfeit goods sold on the company's shopping websites, Alibaba CEO Jack Ma said on April 23.

The company will trace sellers supplying fake goods on the Internet and share the information with the Ministry of Public Security and other government bodies.

The authorities will then follow the clues given by Alibaba and track down people producing the counterfeits.

"If we fail to protect intellectual property, it may develop into a cancer for Alibaba," Ma said.

Alibaba saw transactions made on Taobao and Tmall—its two customer-to-customer and business-to-customer websites—exceed 1 trillion yuan ($161.8 billion) last year.

Taobao last year punished 950,000 members who violated its regulations on intellectual property.

"But we can't penalize people producing fakes. It's essential to work with the government," said Shao Xiaofeng, Alibaba's Chief Risk Officer.

Mobile Music Service

NetEase Inc, a major Web portal operator in China, hit the digital music market by releasing a service that enables users to listen to and share music on mobile devices.

This is the company's latest effort to expand its presence in the mobile sector as an increasing number of people access the Internet through mobile devices.

William Ding, NetEase's CEO, said earlier that a full portfolio of the company's services for mobile Internet will be released in the first half of 2013.

Apart from the music service, NetEase has provided a number of services for mobile devices, including a dictionary service, a news service and a note-taking application.

Currently, there are about 1 million songs available on NetEase, which runs on the iOS and Android operating systems. The company said the service will also be available on tablet computers, Web pages, and client software on personal computers.

NetEase has cooperated with major record companies for the services, including Universal Music, Warner Music, Sony Music, Rock Records and Gold Typhoon.

NUMBERS

28.41

Business income of courier companies above the designated size—annual turnover of more than 2 million yuan ($323,800)—in Q1, a 31.5-percent year-on-year increase bln yuan

71.4 %

Share of courier companies between cities against total courier business volume in Q1

16.21 bln yuan

Business income from courier companies between cities in Q1, a 26.8-percent year-on-year increase

Email us at: yushujun@bjreview.com