According to the statistical data of the State Administration of Taxation Fujian (SAT Fujian), after the pilot work of business tax changed to value-added tax (BT-to-VAT) was fully carried out, the tax of the financial industry of Fujian Province (excluding Xiamen) was reduced by RMB 1.798 billion or 16.9%. Shifting from the increased tax burden to the overwhelming tax reduction, what is the reason for that? What kind of great impact will BT-to-VAT bring to the development of financial industry? Gao Jianping, the board chairman of Industrial Bank (IB), expanded on the reason for tax reduction instead of increase.
“As a member of the national committee of CPPCC, I’m very satisfied with the progress of BT-to-VAT and the services provided by all local taxation bureaus!” Gao Jianping, a member of the national committee of CPPCC and the board chairman of IB, expressed his distinct opinions about the BT-to-VAT and the financial and taxation system reform.
BT-to-VAT benefits more distinct tax reduction
“As the BT-to-VAT reform proceeds, the tax reduction of IB is more and more prominent. The tax is less than the business tax, which is really a gift offered by the reform.” Gao Jianping said that by December 31, 2016, IB has achieved tax reduction of RMB 1.06 billion.
IB was established in August 1988 and listed in Shanghai Stock Exchange in February 2007. Now it has 119 branch operations and 1787 outlets across all major cities of China, and has changed from a single bank to a modern financial service group based on the banking business and covering trust, lease, fund, consumer finance, futures, asset management, research & consultation and digital finance. In 2016, IB ranked 195 among Fortune Global 500 companies and was one of the Top 50 Global Banks. Since 2013, IB has been topping the list of taxpayers of Fujian and level A enterprise of taxpaying credit.
By holding to the principle of “legal, civilized and stable operation”, IB always takes legal and honest tax payment as an important goal of an enterprise to perform its social responsibilities and return to the society. The BT-to VAT reform reduces the burden of enterprises and helps them grow faster and offer more returns to the society.
Tax reduction is attributed to the joint efforts of the state, the tax authority and many enterprises
Gao Jianping said, there are three reasons for IB to achieve significant tax reduction:
The first reason lies in the effective national policies. The tax rate of the financial industry was changed from the business tax of 5% to the value-added tax of 6%. At the early stage of the reform, since there were only a few deductible items, the tax declared for the first time after the reform was slightly increased. However, the Ministry of Finance and the State Administration of Taxation later issued 4 supplementary policies specific for the financial industry, which better fit the characteristics of the financial industry and helped reduce the tax significantly.
The second reason lies in the support of the tax authority. Before the reform, the Ministry of Finance, the SAT and the SAT Fujian summoned many financial institutions, including IB, to hold symposiums where they delivered the national policies, knew the difficulties of commercial banks and asked for suggestions and opinions. Before and after the reform, the taxation bureaus of province, city and district levels organized many policy trainings, actively and patiently answered the questions of enterprises, and implemented all policies fast and completely. In February 2017, Lin Jinghua, the secretary of party committee and the head of SAT Fujian, led the leaders of relevant divisions and offices to our company and solved our problems on site.
The third reason lies in full preparation of enterprises. At the beginning of 2015, IB formed a BT-to-VAT steering group led by the president of IB and composed of the heads of all relevant departments to make preparations including policy study, business sorting, system construction and reconstruction, contract text modification, equipment bidding and purchasing, collection of invoicing information, development and amendment of regulations, recruitment and training. Before the reform, IB has independently formulated training materials and held many trainings of BT-to-VAT, covering more than a thousand employees of taxation, finance, accounting, technology and business sectors.
The difficulties of BT-to-VAT reform for commercial banks lie in the system construction and reconstruction. Due to the incredibly large amount of business types and transaction data, the system reconstruction required by the reform involves the core system and a dozen of trading systems. With constant efforts day and night, the BT-To-VAT team of IB has completed the construction and reconstruction of the value-added tax management system, the core system, the financial market system, the financial management system as well as more than 20 relevant peripheral systems of IB, developed the demand list and handed it over to the R&D team. On April 27, 2016, the value-added tax management system, which was independently developed and fully patented by IB, was officially launched, making IB one of the few domestic commercial banks capable of directly invoicing with the production and trading system. By directly invoicing with the production and trading system, this system issues value-added tax invoices to clients based on the actual business and transaction flows and avoids invoice omission, wrong issuance, false issuance and repeated issuance. This system not only fundamentally ensures the compliance of invoicing procedure, but also meets the diversified invoicing requirements of clients such as invoicing separate or combined taxable items. This system involves income item invoice requesting into the management of value-added tax system and allows for systematic and process-based management of income item invoice requesting based on the transaction logs, so as to maximize the ratio of income item invoice requesting.
BT-to-VAT accelerates management upgrade of financial enterprises
“As a key measure for the deepened financial and taxation system reform as well as the structural reform of supply side, the BT-to-VAT reform is very significant for realizing economic growth and structural optimization.” In the opinion of Gao Jianping, the financial industry features multiple business types and complicated accounting. Therefore the BT-to-VAT reform in banking industry is a bold and innovative move in the international taxation practice. China is the first country that fully implements value-added taxation system for the financial industry and has gained great outcome.
The BT-to-VAT reform is not just a simple tax system transformation. It raises higher requirements on the operation and management of corporate bodies. For commercial banks, issuing invoices to clients accurately is just the basis “outer strength”, and it's more important to intensify the “inner strength”.
In addition, IB has seized the opportunity of BT-to-VAT reform to reasonably adjust the corporate development strategy, optimize the operation flow, strengthen the refined management, enhance product innovation and business upgrade, and keep increase the operation performance of the company.
The first measure is to “do accounting and business” in operation management; enable all the frontline employees of the bank to understand the calculating principles of value-added tax by means of various trainings ; fully consider the influence of value-added tax on income and cost and optimize business structure.
The second measure is to set forth regulations, standardize the management of value-added tax invoices throughout the bank, add taxation management posts to strengthen the review of the certificates of deductible items on special VAT invoices to make sure all deductible items are conforming.
The third measure is to push forward the reform of centralized procurement, maximize the range of centralized procurement, comprehensively sort out suppliers of all kind, select general taxpayers as our suppliers as much as possible, and expand the source of taxable income items. The fourth measure is to intensify the contract management, especially the phased management on contracts spanning the period of BT-to-VAT reform; further define the norms of pricing, the tax rate and other key information of value-added tax; and amend contract provisions as needed to reduce compliance risks. The fifth measure is to intensify business accounting; require all branch operations to follow the accounting system of the head office and check the accounts of income and expense items based on the principle of separated price and tax, so as to objectively and actually reflect the operation performance of all operations after the reform. The sixth measure is to accelerate the R&D of electronic invoice and mobile Internet invoicing software. In the future, clients may apply for the issuance of value-added tax invoices via their mobile phones or computer terminals or receive invoices with email, which will greatly increase the flow efficiency and offer more convenient services for clients.
Gao Jianping also expressed his expectations on the furthering of the BT-to-VAT reform and the perfection of the VAT system, and raised pertinent suggestions. “I hope the policy direction of ‘tax reduction instead of increasing’ can be executed for a period of time; the tax rate can be simplified and streamlined in a scientific way during the process of furthering the VAT system reform. I expect all the deductible items can be fully used so that the taxation is fairer and normatively managed enterprises can actually benefit from the taxation system.”