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International Tax Newsletter - Spring/Summer 2012 - China

TRANSITION FROM BUSINESS TAX TO VALUE ADDED TAX 

The long-simmering reform from Business Tax to Value Added Tax (VAT) has started. On 16 November 2011, The Ministry of Finance and State Administration of Taxation announced the “Pilot Proposals for the Change from Business Tax to VAT” and issued a number of circulars setting out the Shanghai VAT pilot arrangement.

The pilot arrangement would start in the transportation industry and some modern service industries such as R&D, IT and technology services, cultural and creative services and movable property leasing in Shanghai from 1 January 2012.
After the change, in addition to the existing VAT rates of 17% (standard tax rate) and 13% (low rate), there will be new rates of 11% and 16% (both low rates).

The Shanghai pilot arrangement provides an example for the whole nation. The scope of the pilot will be expanded and the reform will be promoted to the whole nation step by step. Beijing has been approved for the pilot and Tianjing, Chongqing, Jiangsu and Shenzhen are also applying to be included in the pilot.

Many large- and medium-sized state-owned enterprises are concerned that the reform will influence their tax burden dramatically and affect their profits. Some of these enterprises are inviting tax advisors to calculate the tax burden after reform so that they can develop long-term strategies for business development and adjust their business models.

More information on this development can be provided by Edmund Chan, PKF China, through the EisnerAmper contacts listed at the end of this Newsletter.

International Tax Newsletter - Spring/Summer 2012 Issue 

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