China's Trial to Replace Turnover Tax with VAT
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 nationwide. 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.
China's inflation was running above six percent for four successive months. The VAT reform is aimed at avoiding repeated tax collection and supporting the growth of the advanced service industry.