With a view to further reducing the tax burden on the market subjects, on 28 march 2018 the standing committee of the state council decided to reduce the value-added tax rate on construction from 11 per cent to 10 per cent; on 4 april 2018, the general tax administration of the ministry of finance published financial tax circular no. 32 detailing it. The impact of the lower tax rate in the construction industry on the construction contract and the construction price is described below by the master of the certificates。
Impact of lower rates on construction contracts, construction prices
Specifically, in the area of construction of the project, the effect of the policy on the performance of the construction contract, the construction price and the adjustment of the construction price need to be refined。
Is the downward revision of the value added tax (vat) rate in the construction sector an adjustment of policy documents? Can the contract for construction be agreed to exclude its application
According to the circular issued by the provinces and municipalities on the basis of the vat tax rate, the construction administration is included in the policy management framework, which is not materially different from the manual labour policy adjustment document, and the policy documents of the priority provinces and municipalities are summarized below:
Since it was a policy document, the parties to the contract could exclude its application by agreement, in the light of past engineering practice and existing legal provisions。
2. How should construction prices be adjusted
The tax (2018) 32 is based on the date at which the tax obligation occurs; under article 19 of the provisional vat regulation, the tax obligation occurs at three points in the case of construction services: the point at which the sale is received, the point at which the claim for the sale is obtained (the date on which the construction contract is normally reviewed) and the point at which the invoice is issued, whichever is the first。
The original 17 per cent and 11 per cent tax rates are applied to all cases where the obligation occurred before 1 may, and invoices are issued at the original rate; on the contrary, 16 per cent and 10 per cent of the adjusted new tax rates are applied to those that occurred after 1 may and invoiced at the new rate. However, when tickets are issued after 1 may, the 11 per cent tax rate will need to be selected manually instead of the default 10 per cent of the billing system。
In other words, as long as the construction unit was to be paid for the work on 1 may, the construction unit should be required to declare the cost of the construction work at the original 11 per cent rate, regardless of when it was issued。
3. The nominal rate of value added tax (vat) fell by 1 per cent, so how much did the corresponding construction price fall
The value of the works consisted of a list of works and a flat price, which in the final analysis was based on a flat sum. According to the project list pricing procedure, for example, it has been calculated that the cost of the works would have decreased by a corresponding 1 per cent if the tax price had remained unchanged, although the overall decrease was about 1. 1 per cent due to the appropriate reduction in the tax price in tianjin。
4. The nominal tax rate of value added tax (vat) fell by 1 per cent, so how much does the real tax burden fall for construction enterprises
The actual downside of the tax burden on construction enterprises is estimated to be between 0. 4 per cent and 1. 0 per cent for general projects; and in contrast to the ratio of the cost of rental of materials and equipment for projects, the higher the cost factor for the construction of materials and equipment, the lower the lower the rate, the lower the theoretical tax on the labour of simple contractors, the lower by 1 per cent. Therefore, if the construction price is adjusted in accordance with the policy document, then the basis for the negotiations between the parties to the contract should not be only nominal tax rates but also the actual rate of reduction in the tax burden。
Specific measurements are based on the following:
The tax burden based on construction enterprises consists of 1, value added tax, city construction tax, education fee surcharges, and income tax for the enterprise, and special invoices for the acquisition of value added tax (vat) for materials, equipment, etc., can be offset against the sales tax. The value-added tax credit, assuming that the value-added tax credit is applied to projects without materials, rental of equipment, etc., is used to measure the tax decline rate, assuming that the value-added tax is about 50 per cent of the construction price, based on conventional materials, rental of equipment, etc., and that the value-added tax is applied again, assuming that the value-added tax is zero。
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