Evaluating China’s VAT Reform
At the beginning of 2012, China began a massive overhaul of its tax system by initiating the replacement of business tax (BT) with value-added tax (VAT). Prior to the reform, VAT was levied only on the sale and import of tangible goods and on the provision of processing, repair, and replacement services, while BT was levied on the provision of all other services as well as the transfer of intangibles and property. As of May 2016, VAT has taken over almost all of BT’s various functions, and is now effectively China’s only form of consumption tax. The importance of China’s VAT reform should not be underestimated.
VICE Minister of Finance Shi Yaobin said on 3rd December 2016 that China will simplify VAT rates in the future to ease company tax burden.
“The current tax system has too many tiers and may confuse policy implementation and impede fair competition,” Shi said during a press conference, promising to make tax rates easier to follow. VAT rates have four levels, ranging from 6 to 17 percent.
He did not provide a timetable or other details of the changes.
The VAT system was rolled out nationwide in May to replace business tax after successful pilots. By the end of October, 96.5 billion yuan (US$14 billion) had been saved by businesses. Taking into account other tax cuts, the government expects a total of 500 billion yuan to be saved this year.
China will continue to improve its VAT system by pushing forward the legislation at a proper time, Shi said.
For further information, please contact Ms. Phoebe Luo at phoebel@zetland.biz.
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