VAT Rates in China Lowered – 2019 Work Report Announcement

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China will lower its value-added tax (VAT) rates as part of an RMB 2 trillion (US$298.3 billion) cost cut package, as the government seeks to reduce costs for businesses amid a slowing economy and tariff dispute with the US.

The announcement was made by Premier Li Keqiang on March 5 in his annual Work Report delivered at the Two Sessions, where China’s policy agenda for 2019 was announced.

According to Li, China’s VAT rates will change as follows:

  • The 16 percent VAT rate, which applies to the manufacturing sector, will be lowered to 13 percent;
  • The 10 percent rate, which applies to construction and transport, will be lowered to nine percent; and
  • The six percent rate, which applies to services, will remain the same, but more deductions for the bracket will be introduced.

The new VAT rates will come into force from April 1, 2019.

Moreover, from April 1, 2019 to December 31, 2021, taxpayers in the service sector – which is the six percent VAT bracket – will be able to enjoy an addition input VAT deduction of 10 percent.

In addition to lowering VAT rates, Li said that tax authorities will continue to explore the possibility of further streamlining the VAT system by reducing the number of VAT brackets from three to two. China also reduced its VAT rates last year as part of a similar tax cut package.

Government officials have repeatedly stressed that tax cuts and administrative streamlining will be used to boost the economy in the place of broader stimulus spending, as the government seeks to reduce the country’s debt exposure.

As of April 1, China’s updated VAT rates will be as follow.

Chinas-VAT-Rates-2019-(002)


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8 thoughts on “VAT Rates in China Lowered – 2019 Work Report Announcement

    Scott says:

    1. WHEN will the reduced 13%, 9% rates take effect? Has that been announce?
    2. Generally VAT is due when goods are delivered and the job is completed. For a Job that was booked and mostly produced in a former period, but finished in the new lower VAT rate period, which rate prevails?

    China Briefing says:

    Hello,

    It was recently announced that the new VAT rates will take effect from April 1, 2019. For information on how the reform will affect your business, please contact our tax specialists here: https://www.dezshira.com/services/tax

    Ivan Dobrev says:

    Hello,
    Could you explain what will be the effect of VAT cuts on export prices?

    Mark Heath says:

    How will this effect the cost of exports. The export VAT rebate has been adjusted inline with VAT, but some suppliers are claiming they have lost 3%.

    Les.Lewis says:

    We have found mixed interpretation on how the VAT reductions will be realised in practice. We see some suppliers reducing the VAT rate but increasing the product cost so the gross price remains the same. ie the supplier is taking the VAT reduction as an opportunity to roll out a price increase. In other cases, the supplier has reduced the gross sell price taking the VAT reduction and passing through to the end customer.

    What was the governments intent?

    Scott A. says:

    It was explained to me that before April 1st, factories were paying the government 13% VAT but were getting back 16% as an export incentive. (extra 3%) Is this correct?

    China Briefing says:

    Hello,

    The VAT cuts may aid exporters, but it will be up to them whether they change their prices accordingly.

    For more information, please contact our tax specialists: https://www.dezshira.com/services/tax

    China Briefing says:

    Hello,

    From our view, the government was looking to reduce costs for businesses with the VAT cut. It is up to the recipients of the tax cuts whether they will pass the lower prices to the consumers.

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