China's VAT Rates To Be 'Streamlined'

by Mary Swire, Tax-News.com, Hong Kong

07 December 2016

Chinese officials have discussed the progress made this year in replacing business tax with value-added tax (VAT) and future measures to simplify the latter's ongoing implementation.

First, it was said that the extension on May 1 this year of China's VAT pilot scheme to the construction, real estate, finance, and life services sectors is "going well and up to expectations."

The briefing confirmed that replacing business tax with VAT "is a major part of [the Government's] supply-side structural reforms," and that the tax reduction from the introduction of VAT "will effectively lower costs for enterprises and stimulate market supply."

According to official estimates, 10.64 million businesses have been involved in the four new VAT sectors during the period from May to October 2016. VAT paid amounted to RMB555.4bn (USD74.3bn), a RMB96.5bn reduction compared with business tax payments. All 26 sectors now operating under the VAT system have received a tax burden reduction averaging 14.8 percent.

At the policy briefing, Vice Finance Minister Shi Yaobin confirmed that the Government would now concentrate on simplifying how the tax operates. In particular, it has been noted that there are too many rates of VAT: 17 percent, 13 percent, 11 percent, and six percent. It was said these are too numerous and need to be streamlined.

It was explained that "the tax rate for the service industry is six percent, as its main provider is labor, while the tax rate for manufacturing industry is 17 percent, as its input tax is very high." However, it has also been noted that having different rates for different sectors could impede fair competition and have a negative impact by complicating the operations of some businesses involved in more than one sector.

Shi indicated that China would next look to reform VAT rates and simplify procedures for VAT invoices and e-commerce.

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