A discussion on China's loan-loss tax law system improvement

Network of paper to write: [Abstract] loan losses to commercial banks in the course of business loans being paid for losses suffered due to all causes, the risk of loan losses is the main risk facing banks for loan losses as banks part of the cost, should the calculation of income tax and tax payable be deducted, but the current loan-loss tax system is not perfect, to some extent hindered the Bank in full and on time provision for reserve is not conducive to risk prevention and maintenance of financial stability .

[Papers] loan losses, the tax system to improve

Status of, our loan loss tax law system

Order to adapt to the development of domestic and international economic and financial situation changes, China's loan-loss tax system has been constantly adjust our loan loss provisions of the tax system are scattered some normative documents, the main contents include the following aspects :

(Identified loan losses

Will should >> << Ministry of Finance State Administration of Taxation on the notice of the loss of corporate assets tax deduction policy (Cai Shui (2009 57) the first time, loan losses from past bad debt losses carve listed individually clear, while also explicitly accounts receivable and advances into the loan class and non-lending, the notice also specifically enumerated eleven specific conditions to confirm the loan loss, and the finance of the State, the tax department under the other conditions "as a fallback provision Write, do a good job to prepare the policy after the financial and tax departments respond to new situations and new problems in the economic life.

(B of loan loss provisioning

A long time, China's commercial banks are universal and loan classification to adapt the five classification provision of law, in recent years, with the implementation of new accounting standards, of a few large joint-stock commercial bank with international standards, to take future cash flows discounted provision for loan loss reserves following the two accrual method for specific analysis:

1, five classification provision for France


The five classification provision method is based on loan assets classified as it is to judge the quality of loans by the bank's internal staff based on the borrower's repayment ability and financial condition of the loans classified as normal, attention, secondary, suspicious loss of five. then according to the different categories of loans corresponds to the ratio of provision for loan loss reserves. the current provisions is in addition to normal loans, loans after four categories in turn according to 2%, 25%, 50% and 100% of the total proportion of mention, substandard and doubtful loans of provision can be plus or minus 20%.

2, the future cash flows discounted


The new accounting standards with international standards, the future discounted cash flow method, the current has been part of the listed banks to take this kind of provision for loan loss provisions. Future discounted cash flow method is the book value of loans written down to According to the present value of future cash flows are expected, the reduced amount recognized as a provision for loan losses in profit or loss based on future discounted cash flow method to assess the quality of loans, the borrower's profitability should be considered, borrowers, as well as future changes in economic environment factors, and the borrower to repay the loan principal and interest discounted at the loan present value of future cash flows of the loans.

(C loan-loss tax deduction for approval

Pre-tax loan loss deduction in accordance with the provisions of the << loss of corporate assets tax deduction management approach >> need to go through the approval of the tax authorities. The way the tax authorities at all levels of approval authority makes provision to reflect the deduction of loan loss , the main contents as follows: the specific approval items relevant decisions of the State Council issues the loan loss provisions in the State Administration of Taxation, by the provinces, the provincial tax authority responsible for approving loans, other causes of loss by the banks the seat of the provincial The tax authorities in accordance with the amount of loss, the evidence involved in the region and other factors into the examination and approval authority.

(Loan loss tax deduction the proportion of

<< Ministry of Finance and the State Administration of Taxation on financial enterprises loan loss reserve corporate income tax deduction of issues related to notice >> to clear the current period to allow the tax deduction of loan loss provisions to the amount of degrees to allow provision for the final 1% of the balance of reserve assets and on the end of the tax deduction of the reserve balance.

In addition, the Ministry of Finance and State Administration of Taxation on the financial enterprises of agriculture-related loans and SME loan loss reserve tax deduction policy notice provision in the regulations issued by financial institutions for agriculture and SMEs loans divided by the level of risk >> loan loss reserve of gold can be deducted before tax, divided into special-mention loans, these loans according to the degree of risk these four categories of substandard loans, doubtful loans and loss loans, the provisioning ratio were 2%, 25 %, 50% and 100%, while the lack of loan losses to offset against the reserve part of the examination and approval can be deducted before tax.

(Five pairs of processing net of loan loss recovery

The provisions of Article 11 of the notice >> << Ministry of Finance State Administration of Taxation on loss of corporate assets tax deduction policy, "loss of assets has been deducted in computing taxable income in future tax years in whole or in part, to recover recover part of the recovery of the current period taxable income should be treated as income in the bank in future years to recover already in pre-tax deduction for loan losses, must be included in the recovery of the current period taxable income and pay enterprise income tax.

Second, the tax system of China's loan loss problems in

(Overall, the design of the system deviated from the principle of tax neutrality

Practiced in the tax system of China's current commercial bank loan loss write-off method with the general reserve which combines the method according to the general reserve method in the calculation allows a tax deduction of loan loss provisions only consider the amount of loan assets without consider the extent of the risks involved in loan assets, which leads to allow the tax deduction of loan loss provisions can not match with the actual non-performing loans can not be true reaction credit risk. Therefore, in theory, the general reserve does not meet the tax revenue neutral. Write off the use of law such as to write off the standard verification procedures, property rights, judicial efficiency and the system of accounting and auditing implications, so practice, the write-off method also deviated from the principle of tax neutrality.

(Two from the rule of law, related laws and regulations and imperfect.
The one hand, our current tax system for commercial bank loan loss provisions scattered in Enterprise Income Tax Law under the command of a variety of national financial and tax department issued the notice and methods seem a bit confusing. The other hand, the normative document-level low statistics and standardize the caliber differences, between the lack of communication and coordination, specifically the use of chaos. Most of the relevant provisions of the form of a "notice", and each notice will have a new requirement, and some of the policies of the effective time limited, often the old implementation of the policy period has ended, new relevant provisions have not yet issued a timely manner, policies, lack of stability and continuity. At the same time, financial regulations and accounting regulations, tax laws and regulations statistical specifications caliber, banks need to respond to different management departments to do different arrangements, so that commercial banks in the actual operating cost increase.

(From the specific system point of view, related to system design needs to be improved

The proportion of the tax deduction for a loan loss reserve is too low

And taxation (2009) 64 document, allowing the tax deduction of loan loss amount of the provision should not exceed to allow provision for reserve loan assets, the bank loan risk classification guidelines, the loan assets are divided into five categories and the corresponding these five types of loans to assets provision corresponding loss reserve ratio: normal loans l%, 2% mention loans, 25% for subprime loans, doubtful loans to 50 percent loss loans 100% of the assets of subprime loans and doubtful loans reserve provision ratio of plus or minus 20% depending on the circumstances, this part of the reserve can be used as the costs are incurred. This shows that the tax law, loan loss provisions the deduction of the proportion of gold reserve ratio was significantly lower than the banks broken down according to the degree of risk provision.

(2) to identify the write-off of loan losses would be too stringent

China's recognition of loan losses to a certain extent from the real. Finance and Taxation [2009] 57 document listed 12 can confirm that the loan loss, and careful analysis will reveal, in recognition of loan losses, banks often must provide many of the legal aspects of evidence and proof, due to legal procedures, bank these prove, often require a huge time and cost, leading to loan losses, not in time for tax deduction. the other hand, the << loss of corporate assets tax net of management approach >> (Guo Shui Fa [2009] No. 88) provides for the actual loan losses should be deducted by the tax authorities for approval before, so that also increased the cost of the bank. Share the free papers Download http :/ / eng.hi138.com 3. recognition and write-off of loan losses in a timely manner
In fact, this is due to the recognition of loan losses and write-off standard too strict a result of not timely recognition and write-off of loan losses, resulting in the accounting and tax differences in loan losses as the cost of processing time, a direct result of the bank thus The early tax and deferred tax assets (primarily by the above loan losses is not sufficient to cause a reversal of this temporal difference into a permanent difference, making the early taxation becomes excessive taxation.

Improve the tax system, our loan loss

According to the above analysis, the current loan-loss tax system there are still insufficient, to some extent encroached on the interests of the banks, hindered the healthy development of the banking sector, so perfect, you need to think about the following aspects.

(A perfect loan losses of Tax Law

Of the PRC on Enterprise Income Tax Law >> and its implementing regulations, tailored tax approach >> of << banking financial institutions for loan losses, provisions in the approach to the range of loan assets, the identification of conditions of the loan losses, loan losses tax deduction of the approval process, grant provision for a reserve range of loan assets, loan loss reserves for tax deduction amount and its calculation method, processing and other related issues, net of loan loss recovery. the same time, the abolition of the time frame for implementation of these policies constraints, policy continuity in time, reduce taxpayer uncertainty expected.

(B loan losses specific tax laws Perfection

(1) improve the loan loss Accreditation System

Simplify the identification of standards for loan losses based on the First, loss of tax revenue approach >> << banking financial institutions loans, giving banks a certain degree of autonomy. Second, clear the loan asset loss tax deduction identified caliber. Various policy file for loan losses recognized standards vary, the need for unified and standardized.

Two. Improve the legal system of the tax treatment of loan loss
First of all, the maintenance of existing bank loan loss reserve deduction of way, but to the deduction of the proportion of reform. Deducted proportion, reflecting the principle of differentiation, specific institutional arrangements: five state-owned commercial banks have the double advantage of economic and political quality of loan assets are high, and strong ability to resolve non-performing loans, it may provide tax deduction of loan loss ratio is still l%, taking into account the joint-stock commercial banks' contribution to the prosperity of the country's financial market and promote the development of small and medium-sized enterprises, as well as their ability to take risks, can improve these banks loan loss reserve tax deduction the ratio of city commercial banks and rural credit cooperatives, loan loss reserve tax deduction ratio should be higher than these two types of banks, to encourage them to financial institutions for the region's economic development services.

Secondly, the experience on the part of the specific nature and purpose of loan losses to the purposes of a specific reserve, specific reserve method provided for reference purposes for the future of China's bank loan loss tax system. The scope of these "special loans" could be expanded to include the "three agricultural "loans, SME loans, personal student loans, loans for poverty alleviation, infrastructure construction loans, including all loans relating to the national economy and this arrangement not only to guide the rational flow of credit funds, but also improve the financial expenditure (tax expenditures ) the efficient use of funds, better play the functions of the public finances.

Again, the eventual establishment of specific reserve system in 2001 due to the People's Bank of China issued a << loan risk classification guiding principle >> China's commercial banks loan assets have been applied for all five classification system, which is the establishment of specific reserve system in the financial accounting system and lay a good solid foundation for our bank loan-loss system as soon as conditions on specific reserve method can be implemented.

Finally, when the loan-loss policy, the main spirit of narrowing the differences in tax law and accounting system, reconciling the contradictory principles of the different stakeholders, a scientific and reasonable scope of loan assets, the actual definition of the identification of conditions for loan losses and deductions the approval process be detailed and not complicated, precise, without demanding to achieve, both the correction of market failure and not hurt the efficiency of resource allocation objectives. Share Free paper Download Center http://eng.hi138.com

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