Tax & Accounting Blog

China Continues VAT Reform

Blog, Indirect Tax, ONESOURCE, VAT Tax Rates, VAT-GST Management February 1, 2016

Premier Li Keqiang confirmed China will continue it’s Value Added Tax (VAT) reform. The VAT reform will provide tax relief up to $85 billion for businesses in China as the economy experiences a slow down. The VAT reform moves the services from the Business Tax to VAT. VAT in China has been a continuous transformation and the elimination of the Business Tax will give China a VAT which aligns with other VAT/GST systems.

When the VAT was initially rolled out in China in 1984 on 24 taxable items. In 1994, the VAT was expanded and broadened to include the sales of most goods and selected services. The Business Tax also introduced in 1994 covered the majority of services. These two taxes complement each other and combine together to provide indirect tax coverage typically found in VAT or GST. Starting in 2012, a selected number of services were added to VAT in a single locations, Shanghai. These some of these selected services were the following:

  • Transportation services
  • R&D and technology services
  • Creative services including intangible transfers
  • Logistics
  • leasing of movable and tangible goods
  • Consulting services

The pilot program for the services listed above then expanded to several other locations in China:

  • Beijing – September 2012
  • Jiangsu – October 2012
  • Anhui – October 2012
  • Guangdong – November 2012
  • Fujian – November 2012
  • Tianjin – December 2012
  • Zhejiang – December 2012
  • Hubei – December 2012

In August 2013, the program was expanded nationwide and then it proceeded to expand to other industries. In 2015, many people speculated the final sectors: real estate, finance, tourism and healthcare would come into the VAT net, however, those reforms were delayed. The most interesting part of the final sectors was a proposal to apply the VAT to financial services but this remains to be seen. The last leg of the implementation was delayed and it seems this will not be completed until 2016 or possibly later.