China ten new VAT test areas announced
The service sector China VAT experiment, being piloted solely by Shanghai since January, will be extended to include ten new designated areas. The China announcement made on 25 July 2012 specified that the cities of Beijing, Tianjin, Shenzhen and Xiamen, as well as the provinces of Guangdong, Jiangsu, Zhejiang, Anhui, Fujian and Hubei would join the scheme with effect from the beginning of August up to the year end. The statement also advised that further areas would join in 2013. In addition, in certain particular service sectors, the trial would be extended nationwide.
Shanghai first China VAT pilot
So far, the Shanghai test has been used as the basic model. The VAT regime is being introduced to replace the business tax. Experience to date indicates that service businesses within the test have experienced tax burden reductions. Also manufacturers, who are already VAT registered under existing VAT rules for goods, have been advantaged. They no longer have to pay service companies the irrecoverable business tax. Instead they can declare any VAT charged by their service sector suppliers as deductible input tax.
Because of the benefits, there has been pressure from other jurisdictions to join the scheme sooner rather than later, and this may have been the reason for this week’s earlier than expected trial extension decision. Other regions which had recognised trade losses with activity being funneled through Shanghai, will no doubt be pleased with this latest development news.
Other commentaries however state that because of a lack of readiness, only a few would be able to implement the VAT project this year, those being Beijing and Tianjin, along with the provinces of Jiangsu and Anhui.