VAT Pilot Reform in Beijing and Other Regions: General Taxpayer Recognition

China’s State Administration of Taxation released an announcement clarifying issues regarding general taxpayer recognition under the Value-added Tax (VAT) pilot program in Beijing and seven other provinces and cities in China. The “Announcement on the Relevant Matters Concerning the Recognition of General VAT Taxpayers under the Value-Added Tax (VAT) to Business Tax Pilot Conversion in Beijing and Seven Other Provinces and Cities (Announcement [2012] No.38, hereinafter referred to as ‘Announcement’)” was released on August 10, 2012.  Key provisions of the Announcement are as follows:

• Taxpayers with annual sales amount of taxable services exceeding RMB5 million prior to the implementation of the pilot project should apply to the competent state tax authorities for recognition as general taxpayers.
• The annual sales amount for taxable services of pilot taxpayers prior to the implementation of pilot project should be calculated as follows:

Annual sales amount for taxable services = Total sales turnover generated in a period of no more than 12 consecutive months ÷ (1+3%).

• Taxpayers do not need to reapply for recognition if they have already obtained general taxpayer status prior to the implementation of the pilot project and concurrently provide taxable services along with other services. The tax authority in charge will send a notification to the taxpayer.
• Taxpayers with annual sales amount of taxable services of less than RMB 5 million can apply to the competent taxation authorities for recognition as general taxpayer.
• For taxpayers that have already obtained general taxpayer status, if they engage in acts such as VAT evasion, tax rebate fraud, and issuance of false VAT deduction vouchers, the competent tax authorities can implement tax payment supervision against the taxpayers for no less than six months.

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