China VAT reform progresses

The Chinese Ministry of Finance has issued an update last month with the State Administration of Taxation on progress of Chinese VAT reform.  In the past year, almost 20 cities in China has introduced significant overhauls of their VAT and Business Tax regimes.

The Chinese consumption tax system is complex, with regular instances of double taxation and burdensome compliance obligations.  The tax authorities are now looking to simplify the system to help boost trade.

In this latest update, issued on 4 December 2012, the following information was provided:

• -Clarifies the treatment of VAT on transportation services to and from Taiwan, Hong Kong and Macao.  In particular, where zero rating may be applied.  It is a general consideration of global VAT systems that international transportation of goods is VAT exempt.
• Qualifying passenger transport companies may use the new simplified VAT rate of 3%.  Under this option, the company may not recover input VAT
• Introduces a new range of services which are not liable to VAT, instead of Business Tax, in the pilot areas.  These include: architecture, environmental, conferences and live event services.