The state cabinet has agreed this week to roll out the pilot of the Chinese Value Added Tax reform across the entire country from 1 August 2013. The reform is based on moving away from what is essentially a turnover tax to a full OECD-based regime of tax on the value added. This means companies can recover the VAT they have been charged by suppliers against the VAT that they charge to their customers.
China VAT pilot reduces double taxation
The reforms, started with a VAT pilot in Shanghai in 2012, aim to reduce the compliance burden of VAT, and the double taxation through the existing Chinese Business Tax. It is estimated that companies currently pay 120 billion Yuan too much in tax because of the overlapping tax regimes. The pilot has since been extended to 10 over provinces in August 2012, with plans for a further 12 provinces this year.
So far, the pilot has not been totally successful: many companies complain that the local tax offices are still refusing to accept many input VAT invoices.
More services including in tax reform
The range of services included is also being extended to include the media broadcast industry in August. Currently, it includes transport and other services. All services will be subject to reformed VAT by 2015, and Business Tax will be fully withdrawn.