June 2018 / China

The much-anticipated draft amendment on individual income tax has been submitted to the Standing Committee of the National People's Congress for the first discussion on June 19, 2018. The amendment, the seventh tax overhaul since the personal income tax code of 1980, proposed to increase personal income tax threshold to 5,000 yuan per month (60,000 yuan a year) from 3,500 yuan at present. For the first time, the taxation is expected to cover all personal income, including income from personal services and rewards and royalties writers earn. Also, for the first time, the following items are deductible from personal income tax, such as the cost of children's education and continuing education, medical fees for major diseases, interest on housing loans as well as housing rent. In order to close tax loopholes, the draft amendment on personal income tax law introduced anti-avoidance clauses, authorizing tax agencies to make appropriate tax adjustments to fight against taxpayers who attempt to evade tax at overseas destinations and adopt unreasonable arrangements to reap illicit tax benefits.

The State Council held an executive meeting on June 13, 2018, deciding to further expand imports to drive economic upgrade and balance China's trade structure. The government will support import of products involving people's livelihood, including daily necessities, medicines, rehabilitation and elderly care facilities, implement measures to reduce import tax on certain commodities; make a major push to develop emerging service trade and boost imports of production-related services like R&D, logistics, consulting, energy conservation and environmental protection; improve policies on duty-free stores and expand imports of duty-free goods, and more technical equipment conducive to economic transformation will also be imported. China will optimize the process of import customs clearance and seek international mutual recognition of Authorized Economic Operators to facilitate import. Unreasonable management measures and fees during the import process will be cleared, and the country will step up the building of a credit system for foreign trade and improve intellectual property protection.

With effect from 1^st July 2018, the pre-tax deduction proof shall be classified as internal proof and external proof based on the source. Internal proof shall mean the original accounting vouchers prepared by an enterprise for accounting of costs, expenses, losses and other expenditure. Preparation and use of internal proof shall comply with the relevant provisions of accounting laws and regulations of the State. External proof shall mean proof documents for expenditure obtained by an enterprise from other organizations, individuals in the conduct of business activities and other matters, including but not limited to invoices (including hard copy invoices and electronic invoices), government revenue receipts, tax payment proof, collection proof, split receipts etc. These will reduce the tax burden for the taxpayers.

The State Administration of Foreign Exchange recently published the Rules for Trade Credit Statistics and Investigation, effective from the date of issuance. There are three prominent amendments to the latest edition of the rules. The first is to change the name from the Rules for Trade Credit Investigation; the second is to adopt a new principle that data providers should be payers and payees of trade activities; the third is to further clarify the definitions of such trade terms, such as trade credit, offshore resale and major export countries and regions, and adjust the explanations of such indicators like export receivable account balance/advance receipt balance at the end of a period and import payable account balance/advance payment balance at the end of a period.