China’s VAT Law: All You Want to Know
China’s Ministry of Finance and State Administration published the consultation draft of its Value-added Tax Law ( China’s VAT Law ) for the legislation process of the VAT system on November 27, 2019. Public comments for the law were open until December 26, 2019. The VAT law changes are expected to be presented to the National People’s Congress in early 2020.
The changed VAT put forward would include:
- Scope of Taxation
- Taxpayers and withholding agents
- Taxable transactions
- Tax and levy rates
- Taxable amount
- Tax computation period
- Tax exemptions
- Tax collection and management
- Supplementary notes
Compared to the prevailing VAT regime, the changed VAT law would differ in the following aspects:
- The draft VAT Law excludes all references to small scale- taxpayers. The current VAT treatment exempts small-scale taxpayers from VAT if the monthly sales are below CNY 100,000.
- The draft VAT Law categorises taxable activities into sales of goods and services, intangibles, immovable properties and financial products. The current VAT rule doesn’t have a separate reference to the sale of financial products.
- The one-day, three-day, five-day tax periods have been replaced by tax periods of 10 days, 15 days, a month, a quarter or half a year.
- The current VAT regime having a disadvantage of double taxation for custom dutiable values while computing the taxable amount of import goods are replaced by the draft VAT Law that excludes the non-trade goods from custom dutiable values.
- Under the current system, the tax rate for mixed sales is based on the seller’s main business. By the draft VAT Law, the tax rates for mixed sales are based on the main tax rate which is more accurate.
- The draft VAT Law allows the taxpayers to claim refunds if the input VAT is greater than the output VAT in the specific tax period or the excess can be carried forward. The current VAT regime generally only allows carrying forward the unused credits.
- The existing VAT regime requires the output VAT to be paid when there is a deemed sale, which is not clearly defined. The draft VAT law clearly defines the specific circumstances under which a deemed sales would arise.
The draft VAT law doesn’t make any changes to the tax rates and provides a transitional period of five years.