Value Added Tax Program to be Implemented in all Industries
The Chinese financial and taxation authorities recently announced its plans in expanding the value added tax pilot program in all industries by Thursday, in hopes to deepen the country’s fiscal and taxation reform. According to the Ministry of Finance and State Administration of Taxation that on May 1, the replacement of business tax with VAT is extended to construction, finance, real estate and consumer services that will ensure that he tax burden on all industries is reduced.
An 11 percent VAT is levied on construction and real estate companies and a 6 percent rate is imposed on finance and consumer service sector. Tangible goods are subjected to VAT for quite some time now, but the levy on services is business tax that is imposed on the value of a sale. This crude system is a tax on tax which his charged on the taxes that is already priced in the supplies being bought. VAT is avoiding this as it is applied to the value added in each link of the chain in production.
Based on a statement released by the State Council, the reform eases taxes by 500 billion yuan this year. Meanwhile a business tax to VAT pilot is started in 2012 and is gradually expanding and has reduced the tax burden of several enterprises mostly small companies by more than 600 billion yuan at the end of 2015.