During the recent National People’s Congress session, Premier Li Keqiang announced that starting 1 May 2016, China will be extending VAT reform nationwide to all remaining sectors still subject to business tax (“BT”). Following this announcement, on 24 March 2016, the Ministry of Finance (“MOF”) and State Administration of Taxation (“SAT”) jointly issued Caishui  No. 36 (“Circular 36”), which provides the detailed implementing rules for the VAT reform expansion and the new VAT framework.
China began reforming its turnover tax structure in 2012, with an aim to eventually merge industries subjected to BT into the scope of VAT. Since its first trial run in Shanghai, the government has gradually expanded the scope of the reform to cover most service sectors (e.g. transportation, postal, telecommunications, modern services, and transfer of intangibles) by the end of 2015. However, four industries construction, real estate, financial services, and lifestyle services have not yet been included in the reform due to their nature and the economic slowdown.
The upcoming VAT reform roll-out will cover the above remaining sectors and thus is being seen as the last phase of the project. With the elimination of BT, China’s current turnover tax regime will be replaced by a modern VAT regime, which will undoubtedly be a landmark milestone in China’s economic development.
Please click on the file below to dowload the full Client Alert