OREANDA-NEWS. October 25, 2012. China is unleashing more economic measures, to cushion the impact of its slowing economy. With small businesses suffering the most from stifled growth, one strategy is to ease the tax burden on these companies. Since the beginning of this year, four Chinese provinces and municipalities including Shanghai, Beijing, Jiangsu and Anhui have implemeted the new scheme to replace the business tax with a value-added tax.

Latest data shows that in Shanghai, where the pilot program of replacing the business tax with the value-added tax first kicked off, tax burdens for local companies have been cut by more than 17 billion yuan or almost 3 billion US dollars. The CEO of a technology firm says his firm has spent 20 million yuan to buy new equipments. Thanks to the tax reform, the company could pay 3 million yuan less in taxation.

Chen Hui, CEO of Shanghai Qifan Digital Technology, said, "Previously, we always hesitated to buy new equipments due to concerns over the tax burden. But this year, we have renewed our facilities."

The value-added tax is a kind of turnover tax imposed on the newly-added value, while the business tax is imposed on the total turnover. Before the tax reform, China imposed a value-added tax in the manufacturing sector, but collected a business tax in the service industry.

The tax reform rules that for tax payers with annual sales exceeding 5 million yuan, they have to pay 6 percent of value-added tax rather than 5 percent of business tax. Companies can get a tax deduction for purchasing equipment or services.

Shen Jieqiang, CFO of Shanghai Qifan Digital Technology, said, "Our tax load has been cut dramatically since January when the reform took effect. In the first eight months of this year, our tax payment has been reduced by around 60 to 70 percent."

As the outsourcing services can also get tax deductions, some companies have expanded their outsourcing. Therefore, industrial specialization has been improved, and the industry chain has been refined.

Gu Ju, director of Shanghai Local Taxation Bureau, said, "The reform has avoided double taxation. It also breaks the bottleneck for the development of the service industry. It has supported the transformation of the economic growth pattern."

After Shanghai, the trials have also been kicked off in Beijing, Jiangsu and Anhui. Currently, more than 400 thousand companies are covered by the reform. The taxation reform trials will be expanded further towards the year end.