On September 6, 2014, First Financial Daily interviews Mr. Yan Zhao, leading person in Chinese tax industry and partner of China Regal Certified Tax Agent Limited, and asks him to express his viewpoint for Business tax to be changed to VAT in real estate industry.

　　Mr. Zhao sets forth his following opinions to this media as follow:

　　From January 1, 2012, the Business tax has been changed to VAT in most industries. At present, only real estate industry, construction industry, financial industry and service industry do not implement VAT.

　　The VAT just likes a full chain consisting of many links, each link involves in a deduction tax with other links. If real estate industry wants to implement VAT, the other industries must implement VAT at the same time, the reason is that VAT implements two invoices, input invoice and output invoice. The principle of VAT is: I need to pay VAT and issue output invoice when I sell goods. When I buy goods from other industries, I need to get input invoice for deducting tax. Otherwise, I only pay VAT without tax deduction, my VAT tax burden is heavier than implementing Business tax..

　　How to deduct land cost is another question, because the government does not pay tax when it sells land, the real estate industry can not deduct tax for purchased land. So, tax burden needs to be considered when designing VAT system.

　　The taxable income of enterprise = income – cost. After Business tax is changed to VAT, an enterprise’s business income and cost are changed at the same time. Taking service industry as an example, which Business tax has been changed to VAT: if income of an enterprise of service industry is CNY 100, after deducting 5% of Business tax, its income is CNY 95. After Business tax is changed to VAT, the tax rate is 6%. Based on VAT calculation formula: Main business income = [100 / (1+6%)], that is CNY 94.3. On the other hand, VAT will impact cost too, for example, on the premise of Business tax, CNY 100 is full cost, but under premise of VAT, the VAT needs to be deducted from cost.

　　Finally, Mr. Zhao gives his conclusion to First Financial Daily for Business tax to be changed to VAT in real estate industry: “Implement of VAT will change enterprise’s income and cost, effect of VAT on enterprise’s net income needs to be judged according to enterprise’s final structure of income and cost.”