Chinese VAT on telecoms

Sat 8th Mar 2014

Plans to include Telecoms services in the Chinese VAT pilot are moving forward.  It was confirmed this week in the Chinese Parliament that plans are advanced, although there was no indication of the VAT rate to be applied.  It is expected to be 11%, compared to the current 3%-5% Chinese Business Tax rate.

The higher consumption tax rates will hit the carriers costs, although there will be improved opportunities to recover input VAT.  Many carriers are drawing up phone plans to include free handsets so as to avoid VAT charges on them.

The new trial will include all the biggest Chinese telco’s including China Telecom and China Mobile.

The Chinese VAT pilot was introduced in Shanghai in 2012 on a ranges of supplies including IT, consulting and transport.  It was extended to the whole country in 2013 to a range of services.  It is expected that all supplies will be subject to the new VAT by the end of 2015.  The big sectors still to be tackled, aside from telephony, are real estate and financial services.