BEIJING – China’s financial and taxation authorities announced it would expand its value-added tax (VAT) pilot program to all industries on Thursday in order to deepen the country’s fiscal and taxation reform.
Starting from May 1, the replacement of business tax with VAT will be extended to construction, real estate, finance and consumer services, to ensure that the tax burdens on all industries be reduced, said a joint statement from the Ministry of Finance and the State Administration of Taxation.
Eleven percent VAT will be levied on construction and real estate companies, while a 6 percent rate will be imposed on finance and consumer service sectors, according to the statement.
Tangible goods have been subject to VAT for some time, but the levy on services is business tax, which is imposed on the value of a firm’s sales. Such a crude system results in a tax on tax: it is charged on the taxes already priced in the supplies they buy. VAT avoids this, as it is applied to the value added at each link in the chain of production.
According to an official estimate released after a State Council meeting last Friday, the reform will ease taxes by more than 500 billion yuan (76.9 billion U.S. dollars) this year.
A business tax-to-VAT pilot began in 2012 and has been gradually expanded. It has reduced the tax burden of enterprises, most of which are small companies, by 641.2 billion yuan by the end of 2015.