China 2014 and 2015 VAT reforms

Fri 1st Nov 2013

The next round of reforms of the Chinese Value Added Tax regime are emerging as it plans to replace Chinese Business Tax with VAT.  The first VAT reform pilot started in 2012 in Shanghai.  It then progressed to 11 other provinces, and Chinese VAT reform went national in August 2013 on transport and broadcast services.

The newest services to be brought into the VAT net will attract a VAT rate of 11% – compared to the current 3% and 5% Business Tax rates.  The average EU VAT rate is over 21%

Telecoms, Financial Services and Real Estate scheduled for VAT overhaul

The next waves of VAT reform will target insurance, financial services, construction and property.

The first new sector, scheduled for 2014, will be telecoms.  It is anticipated that a VAT rate of 11% will be introduced. This will cover phone charges, data, roaming etc.  This compares to the standard rate of 17%, which is levied on sales to consumers of mobile phones.

Following telecoms, the real estate and property construction sectors will follow.  A new rate of 11% will be charged.  The European VAT regime currently exempts real estate from VAT.

The biggest challenge remains VAT on financial services.  The EU VAT Directive, and most other VAT countries, have refrained from charging VAT on banking and insurance as it is difficult to determine the value added points of sale.  Many countries have tried sales taxes, banking levies and insurance premium tax as a short-term alternative.