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China: VAT reform pilot program

25 July 2012: Expansion of pilot program

The Chinese State Council has announced that the VAT reform pilot will be extended to ten more localities, in batches, between 1 August 2012 and the year-end. The provinces/cities to join the pilot include Beijing, Tianjin, Jiangsu, Zhejiang, Anhui, Fujian, Hubei, Guangdong, Xiamen and Shenzhen.

It is unclear how the 'batches' will be implemented. However, we expect that this phased approach will begin with Beijing, with the remaining provinces/cities going live later this year, possibly as early as 1 September 2012 (Jiangsu, Anhui and Guangdong most likely to be affected).

It is also reported that the pilot will be further rolled out in 2013 to other regions, and even nationwide for selected industries.

The pilot program commenced on 1 January 2012, initially applying to transportation and modern service industries in Shanghai. Under China’s current indirect tax system, VAT is levied on the supply of goods, the provision of repair, processing and replacement services and on imports at the standard rates of 13% or 17%, while Business Tax is levied on the provision of other services and the transfer of intangibles and real property at rates of 3% and 5% (with a maximum 20% rate applying to the entertainment industry). The co-existence of the VAT and Business Tax systems has led to several problems, including the issue of double (or multiple) taxation. The pilot program is aimed at resolving the double taxation issue and at fostering the development of modern service industries by transitioning them from liability to Business Tax to liability to VAT.

Contact the Deloitte Indirect Tax team for more information on the potential impact of the VAT reform pilot program.


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