In the course of the March 2018 meetings of China’s 13th National People’s Congress (NPC), the Ministry of Finance (MOF) had committed to reform the individual income tax (IIT) system. The plans included: (i) raising the entry income threshold for imposition of IIT; (ii) enhancing deductions for children’s education and other personal outlays; and (iii) transitioning to consolidated IIT calculations and filings (in place of the current scheduler system). It was indicated that salaries and wages, and independent service income, would be consolidated for tax calculation purposes (see KPMG China Tax Weekly Update (Issue 10, March 2018) for details).
On 19 June 2018, the proposed amendments to China’s IIT law (“draft IIT bill”) was deliberated at the third session of the 13th NPC. It should be noted that it has not yet been adopted by the NPC.
Mr. Liu Kun, the Minister of Finance, outlined the key amendments in the draft IIT bill as follows:
The upshot of the proposed changes is to reduce the tax burden on lower earners, reduce the relative preferences for foreign nationals under the existing IIT law, give greater recognition to personal circumstances and expenses in the IIT calculation, and introduce anti-avoidance provisions.
For detailed analysis of the draft bill, please read the following KPMG publication:
In 2017, the Chinese government set out string of measures under Guo Fa  No. 5 and No. 39 to boost foreign investment in China (see KPMG China Tax Weekly Update (Issue 4, January 2017) and (Issue 33, August 2017) for details). In April 2018, Chinese President Xi Jinping also indicated that China will further open up the economy with new measures to include (i) broader market access and (ii) more attractive investment environment (see KPMG China Tax Weekly Update (Issue 15, April 2018)). To give effect to these plans, the State Council issued Guo Fa  No. 19 (“Circular 19”) on 15 June 2018.
Circular 19 sets out 23 measures; those of tax and finance relevance include:
|Broaden market access
|Improve administration for foreign investment
|Enhance foreign investment promotion
Circular 19 also provides guidance on the following:
Prior to 1 August 2017, the process trade business was supervised by China Customs on a contract-by-contract basis. Under this supervision approach, enterprises engaged in the processing trade were required to set up a handbook for each processing trade contract and make recordal filings with customs offices. In some cases, an enterprise may need to set up dozens of handbooks in one year. Once a contract is completed, the enterprise is also required to go back to the customs office for deregistering the contract. This creates a heavy workload for both the customs offices and enterprises.
To address this, the General Administration of Customs (GAC), from 1 August 2017, piloted a new customs supervision approach for the processing trade in nine customs offices. This included Tianjin, Shenyang, Nanjing, Hangzhou, Wuhan, Gongbei, Huangpu, Chongqing and Chengdu. Later, this was extended to cover an additional 26 Customs offices from 5 March 2018.
On 21 June 2018, the General Administration of Customs (GAC) issued Announcement  No. 59 (“Announcement 59”). This further extends the new customs supervision approach nationwide, effective from date of issuance.
Under the new method, process trade businesses will be supervised on an ‘enterprise basis’, as opposed to the former ‘contract-by-contract basis’. This means that:
With regard to the detailed analysis of Announcement 59, please read KPMG China Tax Alert (Issue 15, June 2018) for details.