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THE Chinese Government will replace turnover
tax with a VAT on select service sectors, such as the transport sector, in
Shanghai from Jan. 1, 2012. If the pilot program is successful and the
conditions are right, the policy will be extended to some service businesses
nationwide. The reform aims to incrementally replace turnover tax with a VAT in
all sectors. This was announced yesterday after a meeting of the Chinese
Cabinet.
Currently, the VAT applies only to enterprises or
individuals, who sell merchandise, provide processing, repair or assembly
service in China. Unlike the business tax, which is charged on a company's
revenue regardless of its costs, VAT can have certain costs and expenses
deducted.
The VAT reform is aimed at avoiding repeated tax
collection and supporting the growth of the advanced service industry.
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