VAT Reformation and its Impact on the Catering industry and System Modification Schemes

March 5th, the Chinese government released a working report on the full-scale implementation of the VAT reformation, which aims to replace sales tax with VAT (value-added tax). March 18th, the State Council Standing Committee Meeting passed the resolution on the full-scale pilot promotion of the VAT reformation. The resolution clearly states that after May 1st, 2016, the VAT reformation will cover all businesses of all formats. According to the definition provided by National Economic Sectors Classification, the catering industry refers to the service of providing on site cooking, concocting, and selling of food in a designated area. The catering industry, as a life service industry incorporated in the VAT reformation previously provided services subject to sales tax, and its tax rate was 5%. After the VAT reformation, the services provided by the catering industry are subject to VAT. For the majority of taxpayers, the tax rate became 6%, but for a small portion of taxpayers, the tax rate became 3%. 

After the VAT reformation, tax calculations for enterprises in the catering industry became significantly more complicated. Furthermore, tax planning and accounting management now require a substantial amount of theoretical knowledge and professional judgment. For catering enterprises with JDE systems, the assistance of Elitesland’s professionalism in providing resolutions supported by JDE will perfectly adapt to changes that resulted from the VAT reformation. The benefits and resolvable problems are displayed as follow:

1. Fast Organization and Adaptation of Accounting Systems: Based on the development plans and tax plans of an enterprise, the enterprise structure (accounting system) must be frequently adjusted. Potential adjustments include changing the coverage of accounting systems, combining multiple accounting systems into one taxpaying accounting system, and converting tax accounting system for all taxpayers. 

2. Financial Accounting System Flow Management: Based on the business type and financial accounting requirements of an enterprise, it is necessary for the enterprise to undergo taxation managements which include, but are not limited to compartmentalization and reconfiguration of existing accounting procedures; process configuration and financial accounting calculations for personal and real estate purchases; process configuration and financial accounting calculations for sideline sales (cafeterias and take-outs) and inter-enterprise purchases; expensing the consumption of storage materials and employee meal purchases.

3. Unified Maintenance of central Data: Update, maintain, and organize central data for accountants, commercial products, customers, and providers. Allowing the enterprise to have a systematic procedure after the VAT reformation. 

4. Financial Configuration of System Standardization and Personalization: In order to effectively carry out proper financial (tax) accounting, it is necessary to reexamine and reconfigure related accounting commands (AAI/DMAAI/flexible accounting) and program management options.

5. JDE System Data Interface Management: In order to complete daily financial accounting calculations such as POS, OA, cost and expense control, logistics, and the taxation management of other system interfaces, it is crucial to modify and perfect related system interfaces.

6. Initial Data Filtration Problems: Taking into account an enterprise’s objective of reducing its tax burden, it is necessary to formulate and consider different approaches and facets of the problem such as real estate, procurement storage, inventory sales, expensing procurements, based on different initial data.

7. Report Form Problems: The JDE system implemented by Elitesland can design and arrange relevant statistical analysis and report forms for taxpaying enterprises, and thus provide support for operational decisions and tax reports. 

8. Other Problems: The JDE system implemented will also provide adjustments for financial management systems that are affected by the VAT reformation such as adjustments for discrepancies in input tax and output tax.

Based on the aforementioned information, Elitesland has a mature solution for financial accounting and system management after the VAT reformation. Elitesland consultants will gladly assess and utilize the current situation and specific businesses of an enterprise’s ERP system, and focus the implementation of the JDE program on the enterprise’s business plan to help the enterprise conduct and complete VAT-related business, financial management, ERP system modifications, and thus successfully confront the VAT reformation.