Value Added Tax in Government of China
Added on 2020-04-01
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BUSINESS CAPSTONE PROJECT1.IntroductionIt happened for the first time in the year 2015 that services contributed to more than halfof the gross domestic products or GDP of China. The field of services have been growing at analarming rate and that rate is higher than all other sectors of the present economy. Thegovernment of China visualizes reformations in the value added tax or VAT to motivate growthin the consumptions and services as the country moves away from the industries that are low-value added. VAT is introduced mainly to motivate the low-end manufacturers in upgrading theircapabilities and technologies. It also aims to motivate the industries to put money into the fieldsof development and research so that they can move higher up in the value chains.The system of VAT is existent in China since the times when the state underwent somebold reforms and introduced itself to the world economy in the year 1979. The Chinese taxsystem went through major renovations in the year 1994. During these times, the VAT systemwas remodeled to include the services related to repairs and processing and those related to thesale of goods. This helped in generating more revenue for the central government. It is expectedthat in 2016 the tax payments would be reduced by a total amount of RMB 500 billion, anequivalent of 77 million USD, due to these expansions of the VAT.The current phase of the reforms on VAT were introduced as an experimental project inShanghai in the year 2012. These reforms incorporated some industries dealing with modernservices and transportation. This was later expanded to eight different locations in the same yearand later throughout the nation o the 1st of August, 2013. By the end of 2015, all industries andservices of the country were brought under the scheme of VAT. Caishui [2016] No. 36 (Circular36) issued jointly by the ministry of finance and the state administration of taxation on March 23,
BUSINESS CAPSTONE PROJECT2016 stated that the major industries that had been paying business tax or BT would be convertedto the VAT regime. Circular 36 made sure that BT was completely replaced by the VAT therebyending the dual existence of BT and VAT mechanisms in China. It is surely one of the majorlandmark reforms in the indirect tax history of China.The VAT regime of China has been further clarified as a part of the efforts on the part ofthe government to deduce 55.2 billion USD from taxes. The state Administration of Taxation orSAT of China has further clarified the four-tier system of VAT to a three tier system. The 13percent bracket has been removed from the earlier system.2.Tax ScopeAccording to Circular 36, VAT payers are defined as individuals and entities sellingservices, real estate and intangible assets within China.Two categories have been newly introduced. They are the category of supplies ofintangible assets and the category of the supplies of real estate. All the core categories can besubdivided in order to define the services covered within the core category. The category dealingwith the supplies of services can be further divided into seven sub-categories. It is the corecategory that includes the new services:1.Postal services2.Transportation services3.Construction services4.Telecommunication services5.Lifestyle services
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