China to implement VAT in all industries by 1st May

From May 1, 2016, China will implement value-added tax (VAT), replacing its business tax, in finance, construction, consumer services and real estate industries, noted DBS Bank. This will help the firms cut tax burdens as VAT averts duplicate taxation. Business tax is imposed on gross business revenues, whereas VAT is levied on the difference between production costs and sales prices.

China’s Finance Minister Lou Jiwei said that just in 2016, tax savings might reach over CNY 500 billion. Accumulated tax savings in the pilot period that ran during 2012-2015 reached CNY 641 billion. The country is trying to build a proper mechanism to share VAT between local and central governments.

Local governments have been worried that major share of the value-added tax will go to central government, noted DBS Bank. Meanwhile, China is also trying to perfect the VAT system, such as lowering the amount of temporary regulations and measures, lowering the number of tax brackets and making a more complete list of deductible items. The Chinese Finance Minister stated that the government will also try to look for reform income tax and consumption tax in order to stimulate consumption.