Northeastern China will conduct an experimental reform of its value-added tax (VAT) system in the near future, National Development and Reform Commission Vice-Minister Zhang Guobao has revealed.

Zhang said that the three provinces - Liaoning, Jilin and Heilongjiang - would shift from the current production VAT regime to a consumer VAT system in eight main industries.

The new VAT regulation will be published soon, he added.

The eight industries involved include oil, chemicals, auto-manufacturing and metallurgy. They are all core industries for this region and at the heart of the central government's strategy to revitalize northeast China.

"The tax reform plan, which is aimed at attracting companies to invest here to revive the old industrial base, will reduce companies' tax burdens and encourage technical renovation," Zhang said.

In fact, this is not the first time that such a VAT reform has been mentioned.

Xie Xuren, director of the State Administration of Taxation,  announced in January that the central government would conduct a trial VAT reform from April 1 in eight industries in the northeastern region. But this was postponed due to a fast rise in fixed asset investment in industries including steel and aluminum in the first half of this year.

On July 1, Liaoning Governor Zhang Wenyue announced that Liaoning would turn its current production-oriented VAT into a consumption-oriented system.

But a source close to the province's financial department told China Daily that the reform has not yet been implemented.

"It is not up to the governor. We must wait for orders from the State Administration of Taxation," said one senior official from the local financial department who wished to remain anonymous.

Large-scale state-owned enterprises are the main taxpayers in the northeast. They are directly controlled by the central government. Their profits mainly go to the central government, not to the local administration. This is why the three provinces have made such an effort to promote the reform, while the central government remains rather cautious and passive, said Song Donglin, an economics professor at Jilin University.

"But the overheated economy has been under control and the nation's revenue has also witnessed a high rise in the first half of this year. It is the time to carry out the transition now," Song added.

Documents from State Administration of Taxation's website also say that "the VAT reform would further expand the tax base and strengthen tax collection to increase tax revenues in the long term."

(China Daily July 22, 2004)