China to Extend VAT Pilot Program

What started as a pilot program in 2012 for Beijing, Shanghai and 10 other regions within China, is now becoming a nation-wide initiative as of August 1, 2013.   The value-added-tax (VAT) pilot has been running in China since 2012 and was started as a means for replacing the business tax (BT) for three specific industries — – transportation, asset leasing and modern services section.   With the expansion of the pilot program, other industries such as financial services, insurance, real estate, and production/broadcast/publication of radio, films and television programs will now be responsible for VAT.    According to the Asia Tax Watch website, “the expansion to the railways, post and telecommunications industries” will take place in the near future.

The full reform to replace BT with VAT is to be completed by the end of 2015, and it has been estimated that the “reforms will reduce the overall tax burden by about RMB120 billion in 2013” alone.  The Asia Tax Watch website noted that, “The expansion of the pilot program to the rest of mainland China is likely to be welcomed by the business community, especially multinational companies and other larger businesses. During the transition period between the commencement of the pilot program in Shanghai on January 1, 2012 and the national rollout on August 1, 2013, the complexity of having VAT apply in some locations, and Business Tax (BT) in others, created some confusion and uncertainties. With the nationwide expansion soon to be complete, some of the competitive advantages in sourcing services from pilot cities will soon be replaced by a more level playing field.”

For more on the roll-out of the VAT program in China, click here.

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