The Impact of the New Tax System on Zhejiang's Economy

In the short term, the implementation of the new law will cause the province's fiscal revenue growth to slow down. In the long run, however, a reduction in the statutory or nominal tax rate will be conducive to business investment and expanded reproduction, thereby expanding the tax base and increasing total tax revenue.

The new enterprise income tax law, which will be implemented from January 1, 2008, is a major event in China's tax reform, marking the establishment of China's unified enterprise income tax system, which will inevitably have a significant impact on the economic and social development and national tax revenue of our province.

Impact on fiscal revenue
The new enterprise income tax law has achieved the "four unifications" at the legislative level: that is, domestic and foreign-funded enterprises apply a unified enterprise income tax law; unify and appropriately reduce the corporate income tax rate; unify and standardize pre-tax deduction methods and standards; unify tax preferential policies, Implement a tax preference system of "industrial preference as the mainstay and regional preference as the supplement. In the short term, the implementation of the new law will cause the province's fiscal revenue growth to slow down. It is estimated that the income tax of domestic-funded enterprises in the province will be 16.033 billion yuan in 2008, down 5.98 percent from 1.02 billion yuan in 2007. In 2008, the income tax of foreign-funded enterprises was 9.74 billion yuan, an increase of 1.143 billion yuan or 13.30 percent over 2007. In total, the income tax of domestic and foreign-funded enterprises in the province is expected to be 25.773 billion yuan in 2008, a slight increase of 0.123 billion yuan over 2007. In the long run, however, a reduction in the statutory or nominal tax rate will be conducive to business investment and expanded reproduction, thereby expanding the tax base and increasing total tax revenue. The new enterprise income tax law reduces the tax burden of domestic enterprises and creates a fair competitive environment for domestic and foreign enterprises, which will effectively stimulate the investment desire and ability of enterprises, so as to provide a solid guarantee for the sustained and healthy economic development of our province and the sustained and stable growth of fiscal revenue.

Impact on key industries
The new enterprise income tax law maintains the preferential policy of exemption or reduction of tax on income from agricultural, forestry, animal husbandry and fishery projects, supports and encourages the construction of agriculture, rural areas and farmers, which is conducive to increasing agricultural investment by various economic entities in our province, implementing comprehensive agricultural development, promoting agricultural structural adjustment, building a modern agricultural system, improving the overall competitiveness of agriculture in our province, and promoting the sustainable development of rural economy; it is conducive to encouraging existing agricultural product processing enterprises to develop on a large scale and intensively through asset reorganization, capital operation, mergers and alliances, etc.

The new enterprise income tax law broadens the scope of application of preferential policies for high-tech industries and allows enterprises to accelerate depreciation, which will have a positive impact on the development of high-tech enterprises and the promotion of industrial progress. The implementation of the new law is conducive to guiding the investment hot spot of our province to the high-tech industry, speeding up the extension of the high-tech industry from processing and assembly to independent R & D and manufacturing, developing and expanding the emerging industries such as electronic information industry, new material industry, biomedicine, bioenergy, biological materials and biological environmental protection, and conducive to the cultivation and development of independent intellectual property rights, Promote the optimization of economic structure and industrial upgrading in our province.

For foreign-invested enterprises that invest in traditional manufacturing industries such as textiles and clothing, machinery and equipment manufacturing, the merger of the two laws will have a certain negative impact. Statistics show that in 2006, the actual income tax burden rate of manufacturing enterprises among foreign-invested enterprises in the province was only 10.05 percent. After the merger of the two laws, the income tax burden of foreign-invested enterprises engaged in these industries will rise sharply, which will certainly bring severe tests, but at the same time, it will also provide opportunities for these industries to achieve industrial upgrading and enhance their competitiveness. The new law stipulates that the research and development expenses incurred in the development of new technologies, new products, and new processes can be deducted by 150 when calculating the taxable income, which is conducive to enterprises to improve their independent innovation capabilities and use technological innovation to improve industrial design, manufacturing, and equipment. And management level, transform traditional crafts, and enhance core competitiveness.

The new law stipulates that the income obtained by an enterprise from the comprehensive utilization of resources and the production of products that conform to the national industrial policy can be reduced when calculating the taxable income; the enterprise purchases special equipment for environmental protection, energy conservation and water conservation, and safe production. The amount of investment can be credited according to a certain percentage. These preferential policies are conducive to promoting the development of cleaner production, energy saving and consumption reduction, emission reduction and pollution control, and are conducive to the development of circular economy in our province, eliminating high energy consumption and heavy pollution industries, strengthening environmental protection, reducing energy consumption and comprehensive utilization of resources.

For the modern service industry, the merger of the two laws is a great benefit.
After the merger of the two laws, the degree of benefit of the financial industry will be very prominent, and communication service enterprises such as China Mobile, China Unicom and telecommunications will benefit greatly. Take China Mobile Communications Zhejiang Co., Ltd. as an example. In 2006, the company's corporate income tax will be 2735.41 million yuan. If calculated at a 25% tax rate, the income tax will be reduced by 0.663 billion yuan and the net profit after tax will increase by about 10%.

The wholesale and retail trade is a thin-margin industry with almost no tax benefits. After the merger of the two laws, domestic and foreign-funded enterprises have unified the pre-tax deduction standards and competed fairly on the same platform, and domestic-funded wholesale and retail enterprises have benefited more prominently.

After the merger of the two laws, domestic real estate enterprises will cancel the taxable wage system, and the real and reasonable wage expenses of enterprises can be deducted before tax. This means that the taxable income will be reduced for the real estate industry with high income and high labor cost expenditure. In addition, the reduction of tax rate will greatly increase its net profit after tax.

Impact on business investment
Tax policy orientation is an important factor affecting the profitability and investment of enterprises, and the adjustment of the income tax policy of domestic and foreign enterprises will have an impact on the investment behavior of enterprises. In the short term, the reduction of tax rate is conducive to the rapid growth of domestic enterprises, especially private small and medium-sized enterprises. After the merger of the two laws, the reduction of the tax rate will improve the profitability of domestic enterprises, especially private enterprises, to a certain extent, increase the net profit after tax of enterprises, so that enterprises have more abundant cash flow for technology research and development, employee incentives and shareholder returns. The new law implements a 20% care tax rate for small and low-profit enterprises. This is an important measure to support the development of small and medium-sized enterprises and enhance economic vitality. It is conducive to brand building, capacity expansion and industrial upgrading of small and medium-sized enterprises in our province, and promotes small and low-profit enterprises. Accelerate development. In the long run, the significance of the merger of the two laws is also to create a fair and competitive tax environment. The gradual improvement of policy transparency and the gradual abolition of various discriminatory policies will effectively enhance the competitiveness of private enterprises in our province, increase the willingness to invest, and increase potential and realistic tax sources.

Impact on the introduction of foreign capital
The merger of the two laws is generally beneficial to the industrial structure of foreign-invested enterprises in our province. First, the new law sets a five-year transition period for the original preferential policies, and foreign-invested enterprises that have been approved for establishment before the promulgation of the tax law can gradually transition to the tax rate stipulated in the new law within five years. Those who enjoy regular tax reduction and exemption can continue to enjoy the preferential treatment until the expiration of the term after the implementation of the new law. Therefore, it will not have a great impact on the production, operation and finance of foreign-invested enterprises in the short term. Second, the new law has implemented preferential policies based on industrial preferences and supplemented by regional preferences. It is clear that foreign-funded high-tech enterprises that need to be supported by the state will continue to be given preferential corporate income tax. At present, most foreign-funded enterprises in our province are engaged in industries that are mainly supported and encouraged by the state and the province, and they can still enjoy tax incentives in the future. Third, from the statistical analysis of the service trade industry, the new law is a tax reduction rather than a tax increase. According to 2006 data, the tax share of such enterprises reached 55.07 per cent, and after the implementation of the new law, the tax rate will be reduced from 33 per cent to 25 per cent, which will be more conducive to attracting foreign investment in modern service industries. Fourth, the 2006 tax data show that the implementation of the new law has reduced the actual overall tax burden of foreign-funded enterprises.

At the same time, the merger of the two laws is also conducive to improving the quality and level of foreign capital utilization in our province. The original income tax preference for foreign-invested enterprises adopts the Generalized System of Preferences, and various tax preferences can be obtained only by the identity of foreign capital, which not only leads to a large influx of foreign capital with low technology content, but also gives birth to a more serious phenomenon of "fake foreign capital", which not only consumes limited domestic resources, but also has a "crowding-out effect" on domestic enterprises ". The implementation of the new enterprise income tax law will greatly reduce the phenomenon of "return investment", which may be manifested as a decline in the growth rate of foreign investment in the short term, but the merger of the two laws eliminates the phenomenon of "fake foreign investment" from the source. it inhibits the behavior of enterprises using equity or asset mergers and acquisitions to obtain tax concessions and "preferential relay", which is conducive to improving the quality and level of the utilization of foreign capital in our province.

Impact on industrial structure
The new corporate income tax law implements tax policies that encourage agricultural development, infrastructure construction, technological innovation, energy and water saving, environmental protection, venture capital, and the development of high-tech, etc., and guides our province through the economic regulation and control role of taxation. The economic growth mode has changed from extensive to intensive, and promoted the optimization and upgrading of the industrial structure. The first is to promote enterprises to establish business mechanisms that are conducive to saving resources, reducing energy consumption, reducing pollution, improving quality, and increasing efficiency, and cultivate a circular economy. Form a technological progress mechanism conducive to independent innovation, nurture the knowledge economy, and accelerate the transformation of economic growth mode. The second is to guide enterprises to increase investment in infrastructure and high-tech industries, increase technological innovation and process transformation, widely adopt advanced and applicable technologies to transform traditional industries, further eliminate backward production capacity, and realize the transfer from industries with high energy consumption and high pollution to high-end manufacturing and high-tech industries. New investment will further shift to agriculture, environmental protection and technology-intensive industries and industries, strengthen the weight of advanced industries, and gradually form a new industrial pattern with high-tech industries as the forerunner, basic industries and manufacturing industries as the support, and the all-round development of the service industry. The third is to promote the adjustment and upgrading of the industrial structure and the unification of the income tax system for domestic and foreign enterprises, so that the fundamental role of the market can be brought into full play. If enterprises want to survive and develop, they must be able to respond sensitively to market demand, thus forming an independent optimization of the allocation of resources. The mechanism realizes the optimization of the economic structure.

Impact on the coordinated development of regional economy
The new enterprise income tax law shifts the focus of preferential treatment from regional preferential treatment to industrial preferential treatment. Both economically developed areas and economically underdeveloped areas can make full use of the new preferential tax system to develop national industries in combination with their own advantages and characteristics. The guiding role of the preferential policies of the new enterprise income tax law will make the foreign capital entering our province transfer to Quzhou, Lishui and other underdeveloped areas where the economy is relatively backward, but the production factors such as land and labor are relatively cheap, forming a situation in which foreign-invested enterprises are blooming all over the province. With the in-depth development of projects such as "mountain-sea cooperation", "underdeveloped townships to a well-off society" and "10 billion help to get rich" implemented by the provincial party committee and provincial government, optimizing the industrial layout of underdeveloped areas will promote the coordinated development of regional economy.