Ten Cities and Provinces Apply to Participate in VAT Reform Pilot Scheme

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By Xiaolei Gu

May 25 – At a conference with the China Certified Tax Agents Association, Deputy Director of the Department of Goods and Services Tax under the State Administration of Taxation, Long Yuehui, revealed that 10 cities and provinces have officially applied to participate in the value-added tax (VAT) reform pilot scheme so far, including Beijing, Chongqing, Shenzhen, Tianjin, Xiamen, Anhui Province, Fujian Province, Hainan Province, Hunan Province and Jiangsu Province.

Long pointed out that the VAT reform can be promoted at a fast pace and has been well received in China as a result of the VAT legislation. However, he made it clear that participating in the pilot scheme is a complicated issue that requires a multi-dimensional assessment. As a result, if and when the State Council will approve the applications is still up in the air.

Moreover, Long told the press that he felt the density of the VAT reform would increase and variations of the trial reform could vary as well.

“Currently, we are carrying out trial reforms based on different areas, but from the perspective of business operations, it might be more effective to trial based on different industries, which will not only ease up the management and supervision on the macro-level, but also help to gain experience,” Long said.

Second round of VAT pilot scheme
Many provinces and cities are concerned that the VAT pilot scheme currently being trialed in Shanghai is going to affect other areas of the country’s economy due to possible relocation of local companies for tax reasons.

Take Suzhou as an example. As Suzhou is located close to Shanghai, if the former doesn’t accelerate the VAT reform, local enterprises may opt to relocate to Shanghai due to the lighter tax burdens.

However, while the 10 aforementioned regions are interested in participating in the second round of the VAT reform, only Beijing might be able to trial from July 1 this year. Other provinces and cities may have to wait until October 1, 2012 or January 1, 2013.

Some experts familiar with the VAT reform have said that carrying out the VAT trial reform by area is not sustainable in the long term, and it is speculated that the VAT pilot scheme by industry will be trialed nation-wide by January 1, 2013.

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