Premier Li Keqiang, at the opening of the 5th session of China’s 12th National People’s Congress (NPC) on 5 March 2017, delivered the 2017 Report on the Work of the Government, which covers the government’s key tasks for 2017. Finance and tax related highlights of the Report on the Work of the Government are as follows:
|Reduce business costs
* For more on recent efforts to reduce enterprise “non-tax” fiscal burdens, please see KPMG China Tax Weekly Update (Issue 38, November 2016), (Issue 7, February 2017), (Issue 8, February 2017) for details.
|Fiscal system reform||
The timing of these changes to incentive policies has not yet been clarified. TheMinistry of Finance (MOF)/State Administration of Taxation (SAT) and otherrelevant ministries would be expected to follow up on the Premier’s statementin due course with detailed plans.
The government’s 2017 work report also includes plans to advance enterpriseregulatory/business system reform in 2017 including:
(i). Increase the number of pilot areas in which the “negative list” approach isused to determine the sectors in which domestic and foreign market playerscan make investments (this approach now is being piloted in Tianjin, Shanghai,Fujian and Guangdong);
(ii). Further steps for combination of multiple government registrations, licensesand permits into a single registration (this follows on from the ‘five licenses intoone’ reform, which was officially implemented on 1 October 2016);
(iii). Increase the scope of the “certificate-license separation” pilot reform(under this reform certain pre-approvals for permits are replaced with simplerecordal filings - this is currently being piloted in the Shanghai Pudong newarea);
(iv). Further reduction of restrictions on foreign investment in the service,manufacturing and mining business sectors.
On 7 March 2017, Mr. Xiao Jie, China’s new Minister of Finance since November 2016, clarified a number of fiscal reform issues at a press conference on the sidelines of the 5th session of China’s 12th NPC.
With regard to the Individual Income Tax (IIT) reform, Mr. Xiao indicated that:
Tax collection and administration for the new IIT system will be aided by the improvements being made in the collection and big data analysis of taxpayer information. The IIT law will be submitted to the NPC for approval once finalized (timing for the IIT law would submitted for approval has yet to be indicated).
* Fu Ying, the spokesperson of the NPC noted at a press conference held on 4 March 2017 that the long awaited real estate tax (RET) will not be put for NPC legislative approval in 2017 although it has been included in the 12th NPC’s five-year plan.
** On 8 March 2017, Mr. Zhang Dejiang, the chairman of the Standing Committee of the NPC, delivered that committee’s work report. Mr. Zhang indicated that, in 2017, China will:
(i). Put existing State Council regulations, such as tobacco tax and vessel tonnage dues, on a statutory basis (i.e., to turn them into laws passed by NPC; following this China would have 8 tax laws in total);
(ii). Modify the SME promotion law and the securities law, and enact the e-commerce law (the draft e-commerce law was submitted to the NPC Standing Committee for a first review on 19 December 2016, see KPMG China Tax Weekly Update (Issue 49, December 2016) for more details).
Per news posted to the MOF website on 8 March 2017, China plans to pilot preferred IIT treatment for private retirement plans (the so-called voluntary complementary personal savings scheme), which is the third of three pillars in China’s pension insurance system. The mandatory first pillar is government schemes funded with social security contributions; the second pillar is a voluntary or supplementary pension benefit called the enterprise annuity. Developing this system is seen to be important in the context of China’s aging society.
Per the MOF website news item Mr. Ou Wenhan, director of the general office/spokesperson of the MOF, China plans to put in place an Exemption-Exemption-Taxation (EET) system of the sort in use in many other countries (including the US 401K plan).
Details of the IIT preferential treatment, including the scope of permissible IRA-linked investment products, tax collection mechanisms, tax information sharing arrangements, and risk-based supervision are all still under discussion and remain to be finalized.
On 6 March 2017, the MOF, SAT and Ministry of Civil Affairs (MCA) jointly issued Announcement  No. 23. This listed out the 1st batch of social bodies, engaged in public welfare activities, in respect of which charitable contributions are eligible for CIT deduction for the 2016 year of assessment (YOA). Charitable donations made by enterprises, to any of the listed 102 social bodies, are permitted to be deducted from the taxable income of the enterprise, subject to a limit of 12% of the enterprise’s gross annual profit*.
You may click here to access the full content of the circular.
* In the newly revised CIT Law, charitable donations exceeding 12% of gross annual profit are permitted to be carried forward and be deducted from the taxable income of an enterprise over the following 3 years. However, it has yet to be clarified that whether the new rule can be applied for charitable donations made after 1 September 2016, and we will monitor this matter. You may refer to KPMG China Tax Weekly Update (Issue 8, March 2017) and (Issue 10, March 2016) for more details about the revised CIT Law and the Charity Law.