China VAT and Service tax reform plans in Shanghai

New proposals for Chinese VAT and Business Tax reforms

Plans for a 2012 pilot in Shanghai to consolidate the overlapping VAT and Business Tax have been published by the Chinese State Administration of Taxation.  The reform is aimed at simplifying the tax system.

The reforms concentrate on reclassifying many services currently liable to Business Tax as instead taxable under the VAT regime.  Details on calculation methodologies have also been published.

A number of services – transport and IT – will from January 2012 be liable to VAT, instead of Business Tax.  The applicable China VAT rates will range from 17% to 6%.  Any traders unable to claim input VAT deductions will instead only suffer 3% on the supplies of these services.