China VAT pilot dates specified

Tue 4th Sep 2012

Details of specific commencement dates for different Chinese cities and provinces, which are to be involved in the VAT service sector project, were made known in a circular on 31 July by the State Administration of Taxation (SAT) and the Ministry of Finance (MOF).

Beijing commenced on 1 September.  Jiangsu and Anhui are scheduled for 1 October. Guangdong (including Shenzhen) will start on 1 November along with Fujian (including Xiamen).  On 1 December Zhejiang (including Ningbo), Hubei and the city of Tianjin will join the programme.

Introducing VAT to China

The pilot scheme, which commenced at the beginning of 2012 in Shanghai, is introducing Chinese VAT as a replacement for business tax in the transport sector and certain designated service industries.  The purpose is to reduce the tax  burdens, avoiding double taxation situations.  While business tax forms part of the product cost, VAT can be deducted, maintaining neutrality.  Manufacturers already VAT registered will be advantaged by being able to deduct input VAT suffered on their service supplies.  The service sector VAT scheme forms part of China’s total taxation overhaul targeted for completion by 2015.

China’s Guangdong province, which includes the large conurbations of its capital city, Guangzhou, and Shenzhen, will, by its size, represent a major step forward for the VAT project. With 110 million people together with China’s highest GDP contribution, this China Sea coast province benefits from a well developed manufacturing and export sector.  Once the VAT scheme becomes established there during 2013, rapid progress through the rest of China is anticipated.  Indeed there is a need to accelerate the VAT introduction, as the beneficial effects of the tax burden reduction, and the attractiveness to manufacturers of service companies already issuing VAT invoices, is already creating trade imbalance.