Paying Taxes Fourteen years of data and analysis of tax systems in 190 economies: how is technology affecting tax administration and policy?

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1 Paying Taxes 2019 Fourteen years of data and analysis of tax systems in 190 : how is technology affecting tax administration and policy? Beijing, China. 20 November Paying Taxes 2019 China pwc.com/payingtaxes

2 Foreword By providing a robust comparison of four key indicators1 of taxation for business in 190, Paying Taxes is a report jointly published by the World Bank Group and PwC Global measuring the tax environment for a medium-sized domestic sample company in 190. It helps governments and businesses to better understand if their tax systems are keeping pace with global change and to learn from what other countries are doing. It can enhance the mutual trust between taxpayers and tax authorities by improving the understanding of where their tax systems are working well and where there is any room for further improvement. In the thirteen years since the edition of Paying Taxes, we have witnessed the very progress that China has made in improving the tax environment for taxpayers. The Chinese government and tax authority have invested considerable resources in a number of areas of the tax system and especially, in recent years, in developing technology. In Paying Taxes 2019 (which relates to the calendar year to 31 December 2017), China achieved a score on Paying Taxes of , indicating very substantial progress compared to a score of just for Paying Taxes In terms of the time to comply and the number of payments indicator, China has made remarkable and sustained progress since The time to comply, which records the time a business spends in preparing, and paying taxes and mandatory contributions has fallen by 83%, from 832 hours in to 142 hours in Over the same time period, the number of payments by 81%, from 37 to 7. The Total Tax and Contribution Rate has also fallen from a high of 84.03% in 2006 to 64.87% in These outcomes demonstrate that adopting advanced technology in tax administration, on one hand, can enhance the administration by tax authorities. On the other hand, it can taxpayers by decreasing the compliance costs in preparing, and paying taxes as well. In light of the impressive trend over the life of Paying Taxes, we believe that China will continue to invest in improving the tax environment, making it less burdensome and much easier for businesses to their tax compliance obligations. For the coming years, China is already planning a host of measures that would make paying taxes easier, such as lowering individual income tax and social security contribution rates, simplifying VAT rate brackets, revising the Tax Collection and Administration Law and substantive tax laws and regulations, regulating local levy systems, and using advanced digital methods in tax administration and collection. We are looking forward to these and other measures that may be reflected in Paying Taxes in the future. 1 Four indicators in Paying Taxes refer to Total Tax and Contribution Rate (TTCR), time of compliance, number of payments and index. of the four indicators and methodology of Paying Taxes, please refer to: For the paying-taxes 2 For historical comparison, the score is only for Shanghai. 3 For years up to and including 2011, the China data is based only on data relating to Shanghai. From 2012 the data for China is a weighted average of the data from Shanghai and Beijing. 1 Paying Taxes 2019 China

3 Key findings from the Paying Taxes 2019 data 4 Technology is already making tax compliance easier in many, but more can be done to unlock its full potential. The global average results for our case study company are almost unchanged from last year, and yet 113 recorded tax reforms. 237 Time to comply 2 HOURS FROM Number of payments 0.2 FROM hours Since 2004, the global average time to comply has fallen by 84 hours High performing use Real-time reporting systems Pre-populated tax returns Machine-learning tax accounting systems 40.4% Total Tax & Contribution Rate THE SAME AS /100 Post-filing index INCREASED BY 0.2 FROM payments The global average number of payments has fallen by 10.3 since 2004 For detailed results by economy and region and to prepare your own comparisons please see 4 The most recent data in Paying Taxes 2019 relates to the calendar year ended 31 December 2017 The post-filing index is a score out of 100 the higher the score the more efficient it is to receive VAT refunds and correct corporate income tax returns. 2 Paying Taxes 2019 China

4 Labour and profit taxes have each accounted for around 40% of the Total Tax and Contribution Rate since 2008 will this continue? Audits and disputes can be some of the most difficult interactions between taxpayers and tax officers. The labour tax component of the Total Tax and Contribution Rate rose in 39, but fell in These four elements are each given a score out of 100 and averaged to give the post-filing score hours to comply with a VAT refund In 2017, the profit tax component of the Total Tax and Contribution Rate fell in 58, but rose in weeks to obtain the refund 15.1 hours to comply with the correction of a corporate income tax return The average Total Tax and Contribution Rate is around 13% points higher for low income than high and middle income ones 13% Only weeks to complete a corporate income tax correction 26.1 Improving tax officers skills is vital for a well-functioning tax system 97% 35% High income are most likely to perform well in both pre-filing and post-filing processes but there are exceptions. Pre-filing performance 97% of provide training to tax officers 35% of offer regular, periodic training to tax officers Post-filing performance High income Middle income Low income

5 China In recent years, we have been witnessing the Chinese State Council, the Ministry of Finance (MOF), the State Administration of Taxation (SAT), and the entire Chinese government are working together towards the same goal improving the tax environment for businesses in China through various measures, featuring the following: Author Matthew Mui PwC China optimizing tax systems, legislating the existing tax regulations into tax laws, initiating the organizational restructuring of tax authorities, d igitalizing the tax procedures, launching the Internet + Taxation Initiative and rolling out of the Golden Tax III System nationwide, cutting taxes, social security and housing fund contribution, and local levies, and providing major education programs for taxpayers. In the last year alone, the time to comply has decreased by 65 hours (31%) to 142 hours from 207 hours in Paying Taxes The number of payments also fell by two to seven payments due to the electronic system for Stamp Duty and as the rolling-out of VAT replaced Business Tax. Furthermore, China has also made progress in the index, a new index introduced in Paying Taxes 2017 to measure the processes of claiming a VAT refund and correcting a corporate income tax (CIT) return, by reducing the time to comply with a CIT correction from 3.7 hours in 2015 to just 1 hour in In addition to the implementation of these measures, we have also seen a cultural shift from an administration focused on enforcement towards one with a taxpayer service mindset. This also the SAT s dedication to establishing a modern tax administration system by On top of the state-level measures, we have seen the local tax authorities, including Beijing and Shanghai (the two survey cities in Paying Taxes), implementing a range of measures to improve tax services for businesses. Figure 1: Trends in the Paying Taxes sub-indicators for China since 2004 Figure 2: Trends in the Paying Taxes post- % / Number of payments Hours Post-filing index (0-100) % Total Tax & Contribution Rate 142 hrs Time to comply 0 7 Number of payments VAT refund components Time to comply with a corporate income tax correction (hours) The time to complete a CIT correction Source: Paying Taxes 2019 data A cash refund of VAT has not been available to the case study company for any year covered by the post-filing index The time to complete a CIT correction is zero for all years as the company would be subject to additional review in less than 25% of cases Source: Paying Taxes 2019 data 4 Paying Taxes 2019 China

6 Get in touch If you have any questions regarding Paying Taxes, please contact PwC China s Paying Taxes team members below. Peter Ng Tax Leader PwC China and Hong Kong 86 (21) peter.ng@cn.pwc.com Matthew Mui National Leader National Tax Policy Services PwC China and Hong Kong 86 (10) matthew.mui@cn.pwc.com Jessica Zhang Senior manager National Tax Policy Services, PwC China 86 (21) jessica.y.zhang@cn.pwc.com pwc.com/payingtaxes At PwC, our purpose is to build trust in society and solve important problems. We re a network of firms in 158 countries with more than 236,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. 1 Please Paying see Taxes 2019 Chinafor further details.