Understanding the recently expanded Value-Added Tax Reform in China

At a meeting on July 25 of China’s State Council hosted by Premier Wen Jiabao, it was decided to expand the value-added tax (VAT) pilot scheme to cover ten cities and provinces including Beijing, Tianjin, Jiangsu, Zhejiang, Anhui, Fujian, Hubei, Guangdong and Xiamen.

The pilot scheme imposes VAT, rather than business tax, on transport and selected service industries. The move is part of a plan to amalgamate all forms of China’s turnover taxes into VAT over the long-term. VAT was previously only imposed on manufacturing companies.

The imposition of VATis expected to reduce the tax burden on the service sector, as business tax is calculated on a firm’s gross revenues, rather than only on added value. It also avoids double taxation issues in that sector, whereby some products have been subject to VAT after manufacture, and then business tax when sold.

As forwarded by the official statement, the policy analysis can be divided into four parts according to the hwuason law group:

1.The background of tax reform

2.Shanghai’s reform

3.Beijing’s reform

4.How the tax reform could affect domestic enterprises in the future

By reference to (4),in order to help domestic enterprises better understand the new tax policy,the hwuason law group will provide advice by focusing on:

-Improvement in facial system

-Value Added Tax invoice management and risk prevention

-Financial support policy. applications

-Tax preferential policies