China’s government has been considering valued added tax (VAT) reform for a few years. However, VAT and business tax (BT) currently account for close to 50 percent of the China government’s tax revenue collection and making adjustments to such an important system needs to be carefully studied and monitored. The Shanghai VAT pilot program – the first of its kind, with the possibility of expanding to other cities – gives the Chinese government an opportunity to test run any reform policies. The changes include tax rate adjustments, depending on each company’s industry and function.
The program, with its January, 2012 implementation date, will necessitate that companies quickly understand the changes and align themselves with the new directives. The speakers recommended that members continually engage with their local tax bureaus to establish the exact changes that need to be made.
•There is a mandatory VAT inclusion for those in the selected industries with a turnover of CNY 5million.
•Taxpayers below this can be classified as small scale VAT payers and taxed at 3%.
•WOFEs, regional offices, and shanghai branches of non Shanghai based entities may also be included
•There is an introduction of two new VAT rates,11% and 6% and there will also be a 0% rate on export.
What to do next
Failure to prepare for the transition from BT to VAT will have long term consequences and may increase the cost of doing business.
It is vital that business included in the scope:
•Assess the VAT readiness of current systems and processes;
•Identify key risk areas and costs to be able to implement strategies to manage these;
•Develop a plan for to transition to VAT
Cashui  No.110:
Cashui  No.111: