China Clarifies Budget Management Issues Under VAT Reform

Oct. 11 – China’s Ministry of Finance (MOF), the People’s Bank of China (PBC) and the State Administration of Taxation (SAT) jointly released the “Circular on Budget Management Issues Concerning the Pilot Collection of Value-Added Tax (VAT) in Lieu of Business Tax (caiyu [2012] No.367, hereinafter referred to as ‘Circular’)” on August 17. Relevant matters concerning the budget management of the pilot collection are hereby notified as below.

Revenue attribution for imposition of VAT

Revenue attribution during the pilot period remains unchanged. All business tax revenue originally directed to a pilot region still belongs to the pilot region after the imposition of VAT, and all the late fees and fines thereof also belong to the pilot region. Revenue generated from the imposition of VAT is not included in the base for the VAT and consumption tax rebates from the central government to the pilot regions. Financial revenue variations due to the imposition of VAT shall be shared by both the central government and the pilot regions in accordance with the relevant provisions of the existing fiscal system.

Revisions to the items for imposition of VAT

From 2012, subject “Imposition of VAT” numbered 1010104 will be added in the Classification of Government Revenue and Expenditures. Under it, the item 01 “Imposition of VAT,” item 20 “Late Fees and Fines” and item 29 “Domestic Refund for Imposition of VAT” will be added. See Annex for details.

Revenue of the imposition of VAT attributed to the treasury

When handling the revenue generated from the imposition of VAT to the treasury, tax departments at all levels shall formulate an independent covering warrant in accordance with the declaration information of taxpayers and choose a corresponding item under the subject 1010104 for filling in the budget account and fill “local level” as the budgetary level.

Annex:

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