China 6% VAT reforms for financial services Oct 2015
- 26 May 2015 | Richard Asquith
China is on schedule to release details of the next stage of its reform of the Chinese VAT regime, which will include the introduction of the tax on financial services.
It is likely that the rate for banking and insurance will be 6%, and will come into affect on 1 October 2015.
Chinese VAT reform
China launched an overhaul of its consumption tax regime in 2012. Whilst known as VAT, the existing tax was closer to a turnover tax, with no ability to recover VAT by businesses through the production chain. This led to compounding of VAT, and a disincentive to internal production. As the Chinese economy pivots from manufacturing for exports, the introduction of a more transparent and fiscal neutral VAT regime was required.
Since a pilot programme in 2012 in Shanghai, the reform has been transferred across the whole country on a sector-by-sector basis. Telephony and postal services were the latest in 2014.
The new VAT system has been replacing the ‘old’ VAT and Business Tax.