New Issue of China Briefing: Revisiting China’s Value-Added Tax Reform

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CB-December-2013-Cover-250Dec. 3 – The new issue of China Briefing Magazine, titled Revisiting China’s Value-Added Tax Reform, is out now and will be temporarily available as a complimentary PDF download on the Asia Briefing Bookstore throughout the month of December.

As China’s economy develops, its tax regime has also continued to evolve as the government strives to create a system that best promotes sustainable market growth. Both business tax (BT) and value-added tax (VAT) are indirect taxes that have been implemented in China for decades. VAT income is shared between the central and local governments, with the majority going to the central government.

Meanwhile, the entire BT levied goes to the local governments. While this arrangement ensured a steady and sufficient stream of income for both the central and local governments, it also created high tax burdens for enterprises.

Prior to the reform, China’s VAT is imposed mainly on the sales and importation of goods and BT mainly on the provision of services. BT is levied on gross turnover with no deduction permitted for tax paid for the purchase of other goods or services. Meanwhile, VAT is considered a neutral tax, allowing businesses to offset certain VAT incurred in relevant purchases from their VAT liability. The two taxes are generally not mutually deductible. Replacing BT with VAT means unifying the difference in treatment between sales of goods and provision of services. This helps enhance the competitiveness of companies in the service sector and encourages them to upgrade their infrastructure.

While this change has brought about tax savings for most enterprises, some enterprises have witnessed an increase in their tax burden. Further, businesses that were previously subject to BT and now fall under the pilot reform may feel overwhelmed by this change. We attempt to demystify some of the confusions and complexities revolving around the reform by introducing the basics of the reform in this issue of China Briefing Magazine.

In this issue:

  • Sectors Covered by the Pilot Reform
  • Tax Rates, Taxpayer Status and Calculating VAT
  • Implications of the VAT Pilot Reform

Revisiting China’s Value-Added Tax Reform is out now and immediately available as a complimentary PDF download on the Asia Briefing Bookstore for a limited time only.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

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