Editor’s Note: Manufacturing companies in China face a high tax rate on production. Recently, Chinese billionaire Cao Dewang made international headlines by announcing that he would open an auto glass factory in Ohio to escape China’s high taxes. This has led international media to question if China’s high taxes are hurting its manufacturing industry.
Last weekend, Chinese tycoon Cao Dewang announced plans to invest $1 billion in the United States to build factories for his auto glass company Fuyao Glass. Cao Dewang claimed that the company had made the decision because of high taxes on manufacturers in China. Land, energy, labor, and other costs are cheaper for the company in the United States. “China’s manufacturing tax burden is 35 percent higher than the United States’,” said Cao Dewang. Fuyao Glass’ bold move has triggered a widespread debate on China’s high corporate taxes.
VAT and Income Tax
Last March, People’s Bank of China’s Director of Statistics Song Shengcheng wrote that China’s corporate taxes are high when compared to the international arena. Li Chunyu, an associate professor at the Chinese Academy of Social Sciences’ Institute of Economics said there are more than 10 kinds of corporate taxes in China.
The bulk of taxes paid by manufacturing companies in China are corporate income taxes and value added tax (VAT). China’s 2008 Income Tax Law states that the corporate income tax rate is 25 percent of a company’s taxable income. The Income Tax Law also provides tax incentives. Small businesses pay a 20 percent corporate income tax rate, and high-tech companies pay 15 percent.
Provisions from the Ministry of Finance show that China’s current maximum VAT rate is 17 percent, and minimum VAT rate is 3 percent. Japan’s VAT rate is 5 percent, South Korea and Vietnam have a 10 percent rate, and Singapore’s rate is 7 percent.
China vs. the United States
A tax expert who wished to remain anonymous said that taxes for corporations in China and the United States are different. Chinese manufacturers must pay a VAT tax on products produced. In the United States, taxes are paid after the product has been sold, and the taxes vary by state. Basically, Chinese companies must pay VAT taxes in accordance with production, and in the United States the taxes are paid in accordance with sales. If a company in the United States does not make a profit, then they do not need to pay a VAT tax.
In addition to an income tax, a VAT tax, and other taxes, some businesses in China pay about 13 percent of taxable profits in additional taxes including 7 percent for city maintenance and construction, 5 percent for education, and 1 percent for flood control.
Profits after Taxes?
Beijing News recently examined two Chinese companies—GREE and Canny Elevator—to better understand the tax burdens faced by Chinese manufacturing companies.
GREE’s 2015 social responbility report shows that the company paid a total of 14.1816 billion RMB in taxes that year. GREE’s revenues in 2015 were 100.564 billion RMB, and the company earned a net profit of 12.536 billion RMB. The company’s taxes accounted for 14.7 percent of its operating income, or 1.18 times its net profit.
Canny Elevator’s 2015 annual report shows that the company paid 336 million RMB in taxes. The company’s total revenues for 2002 were 3.27 billion RMB and its net profits were 488 million. The company’s taxes are about 68.8 percent of its net profits.
TCL Chairman Li Dongsheng said that because of the global economic slowdown and the lack of market growth, average profits in China’s manufacturing industry are currently less than 2 percent.
Song Shengcheng said this past March that China’s corporate tax burdens are high compared to other nations. He used the World Bank’s World Development Index to measure the total tax rate for manufacturing enterprises. In 2013, China’s tax rate for manufacturing enterprises was 67.8 percent. This is significantly higher than in developed countries, and higher than in developing countries like Thailand and South Africa. The rate is only slightly lower than the tax rate in Brazil.
The World Bank and PwC released a new report that shows that in 2016, the total tax rate for Chinese manufacturing companies reached 68 percent—it is now the 12th highest rate in the world.
Source: QQ News
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Keywords: China manufacturing Taxes in China
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