Interviewed by the Beijing Business Today on the issue concerning tax policy for cultural enterprises
After the Shanghai VAT pilot programme, Beijing would officially start the reform on September, 2012. The new tax policy had already been made public early. Most companies have been preparing for what would be once unthinkable, while small companies still felt overwhelmed by the coming changes in tax policy. There are two basic causes of such stress.Firstly, since the policy details have not yet been released a lot is uncertain about the new rules. In addition, those companies have been using sheep management system for a long time, and it is hard to adjust to changes.Under this circumstance,experts suggested that companies should shift its attention to developing an enterprise-level financial system.
Too busy to respond VAT reform
Animation services are one of sort of cultural services that are taxed under the new VAT pilot arrangements. After the announcement was released, although people were wondering what impact the reform would have on this industry, it did not seem likely that there were many worries over it. However, the fact is that the VAT pilot reform was not as simple as what people thought in the first place. Chen Going, who is a president of Beijing Sanpu Smart Fox Cartoon Industry Group, said that he has been busy long enough to make the transition from business tax to VAT.
VAT liability is independent of the type of tax invoices used. This basically means that a VAT payer has to purchase special invoice machine for the VAT control system. However, the tax officers currently are less familiar with a related procedure under VAT system. As a result, time spent with tax officials is a burden firms may face in paying taxes.
In the past, companies mainly concentrated on strategic management issues which cut horizontally across all sectors and functional areas. Under VAT reform, what companies really need to do is to measure its tax burden and determine whether such the burden goes up or goes down. Meanwhile, companies would be better off if they figure out how they could possibly improves its financial system.
“We just paid RMB 30 million in taxes, but we knew nothing about what exactly I have paid . After VAT reform was launched, the most obvious change was that I started to focus on how these changes in tax policies would really impact a company’s decision, and to work out how much VAT to record in your VAT account. Taking control of your company’s VAT including your reclaim opportunities has never been more important.”
Chen Gong also pointed that VAT could bring about a number of problems for many small and medium-sized cultural enterprises unfamiliar with the procedures involved. This was the basic reason why those enterprises felt overwhelmed by such sudden change.
The importance of keeping information updated
By contrast with other companies, Beijing Li Cheng Times Cultural Media Company Ltd made a smooth transition from Business Tax (BT) to VAT. Cui Zheng, who is charging the company’s financial matters, said that they only spend a day managing the full transition since they have been full prepared. Meanwhile, he revealed that how they successfully completed such a task.
“In fact, it’s not that complicated. What companies need to do is to fill in an information form concerning the identity of an enterprise.”
Cui Zheng explained that there are five different types of forms with different functions. The first three forms deal with the company-specific information, and the remaining relate to application for a new invoice machine. By reference to the former, companies may be required to write down information such as the type of enterprise or the business scope etc. Doing so would enable the tax authorities to assure the correct tax rate is applied.
“Many companies ignore the fact how important it is to know what they need to do before they actually get started. Some understands what to do but has no idea where to start. While others even do not know whether their company is a limited liability company or a joint stock limited company, not to mention that they need to figure out the meaning of words related to taxes when filling in those different types of forms.”
Accordingly, Cui Zheng suggested that getting clear on what you want is the first step in actually getting what you want. In doing so, the responsible person of the enterprise or the persons in charge of finance has to do some homework so as to be fully prepared for the coming changes. “In fact, tax departments have offered different solutions that would help in resolving tax problems at certain levels. Notices regarding tax matters have also been sent out by phone or text message on a regular basis. Paying attention to such information is the key to keep informed on tax matters.
Improving companies’ financial system is the key
Liu Tianyong, as a managing partner and a senior partner of hwuason law firm, said that cultural industries as one of the core pilot fields may bring in dutiable goods to declare on Oct. During this period, companies should step up and improve its financial system so as to adapt to change in business. The monies involved may be more significant.
“There are a number of common mistakes that enterprises should take into account.” Liu Tianyong said. For example, different tax systems require different software and computer hardware, and the requirement for a tax invoice becomes stricter under VAT system. Therefore, it is important that businesses militate against the most common mistakes made in processing VAT invoices.”
Another example relates to the VAT declaration system. Some businesses may be qualified for tax deductions, but qualified person is required to meet the authentication requirements set by the tax authorities. Meanwhile, there are time limits for getting tax deductions. You cannot get deduction for any interests paid after the deadline.
Liu Tianyong added that although Beijing adopted Shanghai’s structural VAT reform, there would be new features of Beijing’s pilot arrangements. “Since Beijing has been able to get its own path in developing modern service industries, there could be adjustments regarding VAT pilot scheme for cultural industries. This may directly relate to the type of enterprises that could be affected Under VAT reform.
“Companies paid more negative taxes would apply for tax subsidy from relevant government departments, or tax incentives under the existing tax preferential policies.” Liu Tianyong further pointed out “VAT makes a lot more sense if you understand the basic reasoning behind it. However, many companies lack the appropriate knowledge and skills to handle their VAT position and therefore receive fake invoices for purchases never made. It must notice that severe penalties would be imposed anyone not paying VAT taxes.”
- Ten pilot provinces and cities
10 cities and provinces have officially applied to participate in the value-added tax (VAT) reform pilot scheme so far, including Beijing, Chongqing, Shenzhen, Tianjin, Xiamen, Anhui, Fujian, Hainan , Hunan and Jiangsu.
The standard VAT rate is 17% applying for leasing movable and tangible goods. Under VAT reform scheme, there are two new tax rates 11% and 6% applying for the transportation sector and other modern services
- Keep in touch with both local and national tax bureaus
There are two systems of tax authorities in China, namely, National Tax Bureau and the Local Tax Bureau. Generally, the National Tax Bureau is responsible for assessing and collecting taxes for enterprises and corporations, while the Local Tax Bureau is responsible for individual income taxes and property taxes. In practice，there is a single tax authority in Shanghai, which collects both VAT and BT, while Beijing has separate tax authorities to collect VAT and BT. So，this area deserves companies’s attention.