China to Commence Pilot Project for VAT Reform in Shanghai

Chinese Premier Wen Jiabao held a State Council Executive Meeting on October 26 which reached the decision to commence a pilot project within the Shanghai Municipality for the deepening of VAT reform.

It was decided at the meeting that – in order to resolve the issue of duplicate taxation on goods and provision of labor services, improve the tax collection system, and support the development of the modern service industry – the pilot project for the deepening of VAT reform will be implemented in certain regions and sectors starting from January 1, 2012. Industries within these areas in which business tax currently applies will gradually be replaced with the imposition of VAT.

In addition to the existing standard tax rate of 17 percent and the low tax rate of 13 percent, the pilot project will incorporate two additional low tax rates of 11 percent and 6 percent. The original business tax preferential policies in pilot industries can be extended and adjusted according to the features of VAT and the VAT paid under the pilot project can be deducted according to relevant regulations.

The pilot project will first commence in the transport sector and certain modern service sectors in the Shanghai Municipality. When conditions mature, certain industries will be chosen for the implementation of the pilot project nationwide.

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