The life services industry refers to the service activity which meets the final consumption demand of the people currently in China. It is an umbrella term that covers twelve major categories, divided into numerous areas. Among these categories are residents and family services, health services, and retail and internet sales services for residents of China.
Have a look at our previous article on Healthcare Market in China and Its Growth Opportunities
Roughly translated into “life services” (生活性服务业), the industry is not unique to China but merely refers to China’s service sector. Moreover, the services sector incidentally accounted for 54 percent of China’s GDP in 2019.
The twelve major categories of the life services industry
The main basis for the classification of life services is mainly about consumers’ related consumption patterns as classified in the 12th Year Plan for the Development of the Service Industry. This classification is a reclassification of activities related to the characteristics of the life service industry in the classification of national economy industries. The twelve major categories are divided further into more subcategories that help classify the different life services in China.
- Residents and family services
- Health services
- Pension (old age) services
- Tourism and entertainment services
- Sports services
- Cultural services
- Retail and internet sales services
- Residents’ travel services
- Accommodation and catering services
- Education and training services
- Residential housing services
- Other life services
Meanwhile, taxpayers in the life services industry may also be grouped into four broader categories below:
- Postal services;
- Telecommunications services;
- Modern services; and
- Life services.
Relevant tax policies for the life services industry
To alleviate the country’s unemployment and promote small businesses, the Chinese government has implemented tax cuts on the life services industry in China. From October 1, 2019, to December 31, 2021, taxpayers in the life services industry can avail of a 15 percent tax credit. That is, these enterprises and individuals can deduct the taxable amount by 15 percent (from 10 percent) following the current deductible tax credit. To be more exact, taxpayers under the life services industry are those enterprises whose sales of life services account for more than 50 percent of total sales.
Taxpayers established or incorporated before March 31, 2019, whose sales for the period from April 2018 to March 2019 (less than 12 months of operation, per sales for the actual operating period) meet the above conditions shall apply the credit policy as of April 1, 2019.
Taxpayers established after April 1, 2019, shall apply the credit policy as of the date of registration as a general taxpayer if the sales for the three months from the date of establishment meet the above-mentioned conditions.
After the taxpayer determines the application of the credit, it will not be adjusted during the current year, and whether it will apply in subsequent years shall be determined based on the previous year’s sales calculation. However, since the life services industry covers a wide range of businesses in China, pertinent tax updates may apply to one category but not to another.
Input VAT credit
The additional input VAT credit is computed by multiplying the 10 percent or 15 percent (whatever is applicable to the enterprise) to the deductible input VAT for the current period. The 10 or 15 percent multiplier depends upon the timing and type of service the taxpayer is engaged in. This additional input VAT credit will be added to the current period’s input VAT to come up with the period’s VAT payable.
Performance of the life services industry
There are two measurements that gauge the growth or contraction of the industry based on current business sentiment within the economy market players. The National Bureau of Statistics releases purchasing managers’ indices (PMI) based on the sentiment of larger service firms that are mostly state-owned. Smaller, private firms’ sentiments are measured by Markit for Caixin Magazine. Changes in production, new orders, employment, delivery times, etc. are among the indices that are compiled from surveys given at the start of each month to business owners and supply-chain managers. The reading or interpretation of the indices are as follows:
- A PMI above 50 is indicative of industry or sector growth. The higher it is above 50 means there is a faster pace of expansion
- A PMI below 50 indicates industry contraction.
The industry as a major capital market
Overseas investors have been looking to China’s life services industry (service sector) for opportunities to enter into the world’s second-largest economy. From January to April of 2021, 14,533 new foreign-invested enterprises have been established throughout China, a 50.2 percent increase year-on-year and an 11.5 percent increase compared to the same period in 2019 (before COVID-19). Among the surging markets under the industry, pension services indicate the greatest potential recently because of China’s increasing old-age population.
Conclusion
China’s economy has grown a lot over the last several decades but it is evident that with more modernization (and perhaps more globalization), China can reach a developed country level. Its service economy is now the largest contributor to its GDP, but its size still lags that of other developed nations whose service sectors account for about 70 percent of the GDPs. China’s leadership is focused on changing this, however, with its 12th Five Year Plan, which addresses its dependence on exports.
Moreover, the industry’s tax policies are geared towards aiding the enterprises in the industry to be more prosperous by promoting employment and growth. This is evident as well in the interest in the industry shown by the numerous foreign direct invested enterprises that have ventured into the world’s second-largest economy.
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