China: Draft VAT Law Review

Victor Duarte
January 21, 2020

The Ministry of Finance and the State Taxation Administration are pressing ahead with China’s VAT reform having issued a Consultation Draft of the VAT law of the People’s Republic of China on 27 November 2019.  It called for feedback from the public and other interested stakeholders. This draft law aims to consolidate the reforms and measures adopted during the last eight years within the sphere of VAT including some adjustments and improvements.

The proposed draft law includes provisions to address the following:

  • To adjust the taxable threshold for sales turnover to 300.000 RMB per quarter. Taxpayers below that threshold are out of scope of the VAT law. However, they can opt to pay VAT on a voluntary basis.
  • A tax rate for general sale and import of goods is set at 13%. Some exceptions apply including two reduced tax rates: 9% for certain supplies, and 6% for selling services, intangible assets and financial commodities.
  • For foreign companies carrying out taxable transactions in China, the buyer will be a withholding agent. This rule will apply even if the foreign organization has a business already established in China.
  • Reducing a taxpayer’s compliance burden by replacing the previous three VAT assessment periods of one day, three days and five days into only one half-year base period, reducing the frequency of tax filling. This half-year period doesn’t apply to taxpayers who adopted a general tax calculation method.
  • The information exchange and coordination mechanism are implemented between the tax authorities, banks, customs, foreign exchange authorities, market supervision authorities and other departments to safeguard the further strengthening of VAT collection and administration.

The opportunity to submit comments on the public consultation closed on 26 December 2019. The next step is the deliberation and approval of the law by the National People’s Congress.

This VAT law is welcome.  It’s a step forward by the Chinese Government to improve the tax legal system, increase public participation in legislation, widely consolidate social consensus, and to promote scientific legislation.

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Victor Duarte

Victor is a Regulatory Counsel at Sovos TrustWeaver. Based in Stockholm and originally from Venezuela, he obtained a Law degree and a specialisation degree in Tax Law in his home country. Victor also earned a Master´s degree in European and Internal Tax Law from Lund University in Sweden.
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