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Expansion of VAT to real estate, finance and consumer services

China’s ongoing move to replace business tax with value-added tax is expected to expand into three crucial sectors this year - real estate, finance and consumer services. The State Council announced on March 18 that the expansion should be completed by May 1st.

A pilot scheme to convert business tax to value-added tax began in 2012, and is part of a larger reform aimed at substantially reducing corporate tax burdens and supporting economic growth. To date, the reform has been applied to rail transportation, postal services, telecommunications and some service sectors.

According to a report from China International Capital Corporation, from 2012 to the first half of 2015, the measure has resulted in tax savings for businesses of nearly half a trillion yuan, or 0.2 percent of the country’s GDP in the period.

And, according to the State Council, the government will be expecting a reduction of about a half a trillion yuan in taxes this year as a result of the reform. Business tax and value-added tax are two of the country’s three major indirect taxes. However, business tax is a local tax, whereas value-added tax is levied by the central government, meaning ramifications for local tax revenues as well.