China outlines plans for VAT and BT overhaul to improve market openness |
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10 April 2011 In March 2011, a new Chinese five-year plan was approved, which includes measures to overhaul the complex and restrictive indirect tax system. The TMF Group in China reviews some of the proposed reforms. This covers the change to VAT and Business Tax (BT) to bring them into line with globally accepted standards for an efficient and growth-orientated taxation system.
Reform of a complex and inefficient VAT compliance regime
Under the current indirect tax regime, there are several taxes imposed on goods and services. VAT is levied on the supply of goods. Business Tax is charged on the provision of most services and property. Aside from the dual complexity, the BT regime does not provide for the offset of VAT incurred (input VAT), so can result in double taxation for companies. In addition, the VAT system can act as a barrier to outbound trade as there are restrictions on the refund of input VAT for exporters of goods and labour-based services. The reforms plan for the extension of VAT to all goods and services, with BT being withdrawn eventually. The government has also indicated that it wishes to reform the allocation of indirect taxes between the regional and central government.
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