China Expands VAT Reform

 
China's top taxation watchdog on Oct.1, 2012 said that two more provinces are ready to pilot a reform of replacing turnover tax with value-added tax (VAT) in a bid to lower the overall tax burden and boost certain sectors.

Eastern provinces of Jiangsu and Anhui started the trial program on Oct. 1. So far, a total of 104,000 enterprises have been included in the program in Jiangsu while 46,000 enterprises have been covered in Anhui.

The trial aims to apply VAT to the transport sector and some areas of the service industries in the two provinces, following that of Beijing, Tianjin and Shanghai.

According to a decision made in July at an executive meeting of the State Council, China's Cabinet, the trial program will be expanded to more than 10 provinces and cities.

Turnover tax and VAT are two major tax categories in China. Turnover tax applies to a production process of a business with the tax rates varying from three to 15 percent according to different sectors, while VAT is deduced from the difference between a commodity's price before taxes and its cost of production.