CHINA TOPIX

11/02/2024 01:37:07 pm

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China to Apply VAT Program Across All Sectors

China implements tax reform, switches from business tax to value added taxes.

(Photo : Getty Image) China implements tax reform, switches from business tax to value added taxes.

Financial and taxation authorities of China announced on Thursday that it will apply its value-added tax pilot program across all sectors to consolidate the fiscal and taxation reform in China.

Beginning May 1, the last four sectors, namely, construction, finance, consumer services, and real estate, will be replaced from business tax to value-added tax to make sure that tax burdens across all industries are cooled down.

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In accordance with the new guideline, which was jointly posted by the Ministry of Finance and the State Administration of Taxation, the land fee paid to the government will be subtracted from the tax base.

The new guideline further stipulates that firms under the construction and real estate industries will pay an 11 percent tax, whereas 6 percent will be charged for companies under finance and consumer service.

Tangible goods have long been subjected to VAT but its services imposed business tax, which is levied on the value of a company's sales. Such system causes tax on tax, where it charges taxes already priced in the goods consumers' purchase. With VAT, this circumstance is avoided as it imposed to the value added at each phase of the chain production.

The move will alleviate taxes by over 500 billion yuan ($76.9 billion) in 2016, based on the official estimate posted during a State Council meeting last Friday.

This reform began in 2012 and is continuously expanding in a drive to push a real economy. It has already eased tax burden from other firms, particularly small companies, by more than 641 billion yuan in 2015.

The business tax-to-VAT reform will benefit the consumer service market more followed by car dealers and makers, Credit Suisse said in a note posted earlier this month.

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