The scope of application of value added tax (VAT) in China is being expanded to apply to several sectors that were previously subject to business tax. Among the sectors that will be subject to VAT—beginning 1 May 2016—will be:
The expanded VAT scope was announced by Premier Li Keqiang at the opening of the National People’s Congress on 5 March 2016. Once this VAT expansion is completed, this will mark the five-year plan for fully replacing the business tax with VAT. It also means that VAT will ultimately apply to the import and sale of all goods in China, and that the provision of all services in China will be subject to VAT. The business tax will effectively cease to apply.
The VAT rates generally are expected to be higher than the current rates of business tax (for instance, the current business tax rate on construction services is 3%, whereas the expected rate of VAT will be 11%; financial services and insurance are subject to a 5% rate of business tax, but are expected to be subject to VAT at a rate of 6%).
Detailed implementation guidance is expected to be issued in the near future.
Read a March 2016 report prepared by the KPMG member firm in China: China’s value added tax expanded to fully replace business tax in major new announcement
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