China Expands VAT Trials

July 26, 2012 Taxation in China

VAT Tax in ChinaBEIJING – China is taking steps to overhaul its tax system for businesses, expanding a trial program to remove some tax regulations and reduce compliance burdens on businesses.

On July 25th the State Council of China revealed that it has approved a plan to expand its pilot program on Value Added Tax from the city of Shanghai and implement the system into the municipalities of Beijing, Tianjin, Xiamen and Shenzhen, and the provinces of Jiangsu, Zhejiang, Anhui, Fujian, Hubei and Guangdong.

The tax will initially only be imposed in selected industries in order to test the effectiveness of the tax before it is launched across all industries and regions in the country.

Tax experts in China have already welcomed the newly announced change, saying that the Business Tax hinders economic growth and increases consumer prices.

Currently, businesses in China face two indirect taxes, the Value Added Tax which is levied on the supply of goods and services, and Business Tax which is levied on the transfer of property. The new pilot program will see the Value Added Tax system expanded and the Business Tax removed entirely.

The expansion of the VAT system has been discussed by the government throughout the year, and in March 2012 the State Administration of Taxation stated that if the VAT system was expanded to the entire country and applied to all service sectors, the GDP of China could be lifted by 0.5 percent, while an extra 700 000 new jobs would be created and levels of exports out of China would grow 0.7 percent faster.

Photo by Toby Simkin