Nov. 7 – At a press conference held by the Fujian provincial government on October 30, officials from relevant government departments introduced the main contents of VAT reform in the province. Detailed information can be found below.
VAT reform in the transportation and certain modern services industries
The pilot scope of VAT reform covers the transportation industry (railway transportation not included) and certain modern service industries, including:
- R&D and technology services
- Information technology services
- Cultural and creative services
- Logistics auxiliary services
- Movable property leasing services
- Authentication and consulting services
Applicable tax rates
Under Fujian’s VAT reform, new VAT rates of 6 percent and 11 percent have been added to the current VAT rates of 17 percent and 13 percent, specifically:
- A 17 percent rate is applied to movable property leasing services
- An 11 percent rate is applied to the transportation industry
- A 6 percent rate is applied to other certain modern service industries
After the imposition of VAT, taxes shall be declared and paid to the state tax authorities, and the export tax rebate for taxable services shall also be processed by state tax authorities.
- Current VAT general taxpayers can deduct the input tax thereof for the services purchased from pilot taxpayers
- The original policy for levying business tax on the balance continues to apply during the pilot period
- Pilot taxpayers who were originally subjected to the business tax exemption policy are entitled to VAT exemption policy or immediate VAT refund policy after the imposition of VAT
Enterprises facing raised tax burdens under pilot policy to get financial support
Up until now, there are 23,363 taxpayers participating in the VAT reform in Fujian Province (Xiamen not included, similarly hereinafter), among which 5,661 of them are transportation companies while the rest belong to modern service industries. The number of general taxpayers is 2,658 and the number of small-scale taxpayers is 20,705.
The main costs faced by companies in the transportation industry and logistics auxiliary service industry include fuel costs, road tolls, labor costs, depreciation expenses, and repairing fees. The overall tax burdens will not increase for these two industries under the conditions of usual investment in fixed assets and full collection of VAT invoices. However, in practice, tax burdens are raised for some enterprises due to the different investment period of fixed assets and difficultly in obtaining VAT invoices for the gas fueled in another place. According to a survey, approximately 10.5 percent of enterprises will experience an increase in their tax burdens after the imposition of VAT.
In order to promote the smooth implementation of VAT reform, from November 1, 2012, pilot enterprises facing an increased tax burden after the imposition of VAT (except Xiamen) are entitled to the transitional financial support policies.
Financial support is available to both general taxpayers and small-scale taxpayers facing an increase in their actual tax burdens. The raised portion of the tax burden shall be calculated as the difference between the amount of taxes owed under the original business tax regulations and the amount of taxes that should be paid according to the pilot policies.
The financial support policies will be implemented until the VAT reform has been carried out nationwide.
Promoting the transformation of economic structure
The implementation of the VAT reform is an important step to encourage the restructuring of the economy and promote the development of the modern service sector in China. It is also a basic orientation to future tax reform.
The Chinese government is hoping the VAT reform will result in the elimination of double-taxation and strengthen the competency of the country’s services sector. It is also believed that the VAT reform could relieve the tax burdens of small-scale taxpayers, so that small businesses in China can boast greater growth and, as a result, more job opportunities can be created. Besides, the growing of a national services sector may also create and bring in more technological innovation.
For taxpayers providing transportation or certain modern services, but have not registered for the collection of VAT in lieu of business tax, they can apply directly to the competent state tax authorities from November 1, 2012 and declare the VAT in accordance with the relevant regulations.
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Value-Added Tax Reform
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.
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