VAT Reform Update by Tax Partner of KPMG Go back »

2016-03-22 | Beijing

Following Premier Li Keqiang’s announcement, on 5 March 2016, to the National People’s Congress to replace the existing Business Tax system with a modern Value Added Tax system with effect from 1 May 2016, the European Chamber invited Ms Shirley (Yinghua) Shen, Tax Partner, KPMG to give a sharing on the latest development of VAT reforms in China. The seminar started with an overview of the VAT reforms in China starting from 2012 and its latest expansion into four sectors. Main industries affected by the changeover, and the expected VAT rates are:

• Real estate and construction services – 11% VAT to replace the current 5% BT and 3% BT respectively;
• Financial services and insurance – 6% VAT to replace the current 5% BT; and
• Food and beverage (F&B), hospitality, healthcare and other lifestyle services – 6% VAT to replace the current 5% BT.

The release of detailed implementation rules are expected shortly. The changeover will result in potential challenges to industry players. The VAT reforms is not simply a tax reform – it is a business change and will have impacts on business in areas such as contacts, pricing, IT systems, suppliers and customer relations, and on finance function processes.

The Q&A session was moderated by Mr David Zeng, Senior Manager, Siemens (China). He raised the questions on the detail application and implementation rules of the newly introduced VAT regime from a business operating perspective. While participants highly welcome the new VAT regime which shows China’s transitioning from a manufacturing based economy to a service based economy, they also raised many questions concerning about future release of the detail implementation rules and the impacts on their respective industries. It is believed that there will inevitably be some short term challenges to businesses in getting ready for the transition to VAT, over time the adoption of a more modern system will benefit the economy as a whole.