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China’s VAT reform helps lift taxpayers’ burden

Updated: May 23,2017 5:40 PM

More than 98 percent of taxpayers in a nationwide pilot program have either reduced or maintained their tax payments under the trial regulations. The program, replacing business tax (BT) with value-added tax (VAT), was rolled out on May 1, 2016 in the fields of construction, real estate, finance and consumer services, according to China’s State Administration of Taxation.

China started VAT reform in 2012 in certain sectors, and later expanded it to cover all industries. The aim was to avoid double taxation, replacing BT, a levy on a business’s gross revenues, with VAT, a tax levied on the difference between a commodity’s price before taxes and its production cost.

The State Administration of Taxation reported that around 11 million taxpayers had been included into the VAT pilot program thanks to the 2016 extension. And most of them had no idea about VAT before.

While more and more taxpayers enjoy the tax cuts brought by the VAT reform, a few businesses still end up paying more.

In order to better carry out the VAT reform and let more people enjoy its benefits, the tax authorities started to provide a three-month guidance to taxpayers all over China, from March. This counseling, aimed at improving businesses’ understanding of the policy and helping them adapt to the new tax system, even offers advice on investment and financial management.

“As a tax reform, replacing BT with VAT is not exactly the same as direct tax relief,” said Fan Yong, professor of Central University of Finance and Economics. It requires businesses to change according to new VAT policy and improve their internal management for them to enjoy the benefits, he said.