VAT reform is a confusing transition for many and introduces a number of additional questions, such as exactly what types of input VAT are now deductible. Confusion about the new laws may also allow opportunistic companies to charge higher prices and blame the increase on the tax reform. To add some clarity to the issue – and VAT in general – this issue of China Briefing takes a look at a number of VAT-related questions.
According to the “Report on the Implementation of Central and Local Budgets for 2011 and on Draft Central and Local Budgets for 2012” presented to the National People’s Congress on March 5, China’s tax reforms in 2012 will focus on six specific types of taxes, namely property tax, value-added tax, resource tax, excise tax, environmental protection tax and urban construction and maintenance tax.
The beginning of China’s pilot value-added tax reform has aimed to make transport services and a list of modern services in pilot areas subject to VAT, instead of business tax. Recently, as a new update to the implementation details of the ongoing VAT reform, China clarified that some of these VATable services can enjoy zero VAT rate and VAT exemption.