Tax update – VAT (Value Added Tax) Reform to be Completed in May 2016

During the National People’s Congress meeting on March 5^th, Premier Li Keqiang held a speech on the government report. He announced that the upcoming VAT reform will cover the last few industries which were not included yet. The main points taken out of his speech are as follows:

• As of May 1^st 2016, the VAT reform will also cover the construction and real estate industry. It will also cover the financial service industry, and the consumer service sector.
• Li emphasized that the taxpayers’ tax burden shall not be increased by this transfer from the Business Tax (BT) system to the VAT system.
• For immovable assets newly purchased by the taxpayers in these industries, the input credit shall be utilized for future deductions.

These are long awaited news for companies in the mentioned industries. The schedule for full roll-out of the original VAT pilot program has never been fixed by the government before this announcement.

According to the legislation procedures, the Ministry of Finance and the State Administration of Taxation will soon publish detailed rules on the implementation of the reform, most likely by end of March or early April.

Ecovis Observations:

The Premier guarantees that the tax burdens of those industries will not be increased, which is good news for the companies concerned. For the current preferential treatments under the BT system, it is foreseeable that some grandmother rule will be issued to ensure a smooth move to the new system. The VAT system is quite different from the BT system. It is strongly recommended that companies in these industries consult tax professionals in order to prepare a smooth transition.

Ecovis Beijing may help in the following:

• Training on the understanding of the VAT system
• Assess and review the current tax status of the company
• Consult on the improvement of certain areas under the new VAT system
• Help to apply for VAT preferential treatments where applicable