VAT reform benefits foreign businesses in China

It's 10 p.m. and a group of diners are enjoying sushi and sashimi in a Japanese restaurant in Dalian, northeast China's Liaoning Province.

A regular customer, Jun Takagi, comes in, orders a hotpot, and begins chatting with owner Sun Xiangqun. To Jun, the flavor and quality of the food is comparable to what he eats back home in Japan, but the price is much lower.

"My husband and I went to Japan to study Japanese cuisine several years ago. After we returned, we opened a restaurant in Dalian because the operation costs had dropped a lot after the tax reform," Sun said.

Before May last year, when a nationwide tax reform was implemented replacing all business taxes with value-added tax, Sun's restaurant paid 16,000 yuan (about 2,400 U.S. dollars) in business tax each month. Now, they only pay about 10,000 yuan, saving them up to 72,000 yuan every year.

Takagi hadn't thought Chinese tax reform would affect him. He came to China four months ago to work at the Dalian branch of TOSTEM, a Japanese construction material company, and has already seen his company's business costs drop considerably after the tax reform. Consumers have also benefited -- they can buy the same commodities at lower prices.

It is estimated that businesses in Dalian's four major sectors - construction, property, finance and services - have been exempted from 1.8 billion yuan in taxes. The service sector alone saw its tax burden fall by 38.7 percent from a year ago.

Across the country, this most significant tax overhaul in China for two decades has saved businesses a total of 1.6 trillion yuan in taxes since it was first introduced in 2012. From May 2016 to June 2017, taxes were reduced by over 850 billion yuan.

Simon Stephan, manager of Thyssenkrupp China, a Germany-based engineering company, wanted to know if the procedures for VAT invoices have been simplified.

He was more than surprised to find out that it can be done in seconds simply by scanning a QR code. "It used to take more than ten minutes. It's unbelievable," he said.

An accountant at Panasonic Appliances Air-conditioning and Refrigeration (Dalian) Co. Ltd. said the company's tax burden has been lowered by 35 percent over the past year. With a new round of tax reform on the way, the company expects to see its profits and competitiveness grow even further.

For Takagi, lower business costs in China contributes to the stable operation of the mother group in Japan.

"Our revenue in Japan dropped by 10 percent year on year in 2016, that gap was filled by an increase in profit in China," he said. "The operation of software development became much easier after the VAT reform, so our group decided to expand investment in the Chinese market."

U.S. citizen Nevin Chen has been living in China for a decade. As the tax manager of Intel Asia Pacific, he has witnessed the improvement of China's tax system. "I am confident in China's future," he said.