China - further progress on VAT pilots

The Shanghai VAT pilot commenced in January 2012.  It is the only one currently in operation.  The aim of the scheme is to replace the existing business tax regime within the service sector; Chinese VAT already is applicable for goods manufacture and supply.  In general, apart from particular concerns within the transport sector, businesses have been experiencing reduced tax burdens, and the new tax regime has been well received.

Pipeline plans had indicated that Beijing and around 9 other Chinese provinces would commence VAT pilots later this year.  Beijing was expected to adopt it in July, but it was postponed, with no date of commencement made known.  Since then, the most recent news is of start-up on 1 August 2012, with the first monthly VAT returns being submitted during September.  This has not yet been fully substantiated.  Other regions, such as Anhui province, were scheduling introduction in October.

Further news has been received from published reports in relation to the Shanghai VAT pilot scheme.  The scope has been extended by introducing an additional reduced VAT rate. The reports state that SAT (State Administration of Taxation) has announced a new 3% rate.   Currently within the scheme, there are two rates, being 11% and 6%.  The new 3% level will be retrospectively applicable back to January.  The 11% rate is applicable to transportation services, but IT, consulting, cultural and creative services are rated at 6%. Freight forwarding and certain logistical services associated with international transportation amongst others will fall under the new 3% band.