China to Expand VAT Reform Nationwide Starting August 1, 2013

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Apr. 11 – China’s State Council announced yesterday that it will expand the current value-added tax (VAT) reform nationwide and include more industries under the pilot scope.

According to the statement released by the State Council, the VAT reform, which replaces business tax with value-added tax in the transport sector and certain services sectors, will be rolled out nationwide from August 1. Moreover, the film, radio and television industries will also be included in the pilot reform. It is estimated that the widening reform will save companies about RMB120 billion in tax payments this year.

In addition, the government will extend the reform at “an appropriate time” to cover the railway transport, postal services and telecommunication industries.

The State Council said the reform is intended to boost business vitality, create new growth engines, increase employment and raise residents’ incomes, as well as to promote sustainable and healthy development in the country. As of February 1, the reform has saved more than RMB40 billion for over 1 million taxpayers that have participated in the pilot program.

According to experts, the decision to expand the reform nationwide comes earlier than expected, indicating the government is taking a more proactive and pragmatic stance.

China’s VAT reform was first introduced in Shanghai on January 1 last year, and was later expanded to another 11 regions. There have been uneven results during the transitional period prior to the national implementation of this tax reform, as pilot taxpayers have not been able to obtain special VAT invoices from non-pilot taxpayers outside of the pilot regions to credit their input VAT, and vice versa. However, with the upcoming nationwide implementation, this issue will be resolved by establishing unified treatment across the country.

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