On November 27th, 2019, the Ministry of Finance and the State Administration of Taxation have released the draft of a Value added Tax Law of the People’s Republic of China for public comments.
As a matter of fact, China has gone through a series of reforms in its VAT collection practice. This law will be a consolidation of undertaken reforms, while maintaining the overall tax framework and level of current taxation.
The highlights:
1. Who Should pay
Entities and individuals that engage in taxable transactions in China with a revenue reaching the VAT threshold and consignees of imported goods are taxpayers of VAT.
The VAT threshold is 300,000RMB of quarterly sales.
2. Computation method
VAT shall be computed and paid under the general tax computation method, except where the government stipulates that the simple tax computation method applies.
With regards to the general tax computation method, the tax payable shall be the balance of the output tax deducting the input tax.
However, for the simple tax computation method, the tax payable shall be the revenue times a levy rate, and the input tax shall not be offset. Currently, the simple tax computation method only applies to small scale taxpayers, or generally speaking, entities whose annual revenue is less than 5 million RMB. （You may check our previous post for more info：General Taxpayer or Small Scale Taxpayer?）
3. Tax rate
The applicable tax rate for the sale of goods, processing, repair and maintenance services, movable property, rental and import of goods is 13%; the applicable tax rate for sales of transport, postal service, telecommunication, construction, real estate rental, transfer of land use rights, sale or import of agricultural products is set at 9%;
the applicable tax rate for sale of services, intangible assets and financial commodities is kept unchanged at 6%.
The levy rate of VAT for simple tax computation is 3%.
4. Imported goods
For imported goods, the tax payable is computed based on the composite assessable price and the applicable tax rate. The computation formulas are as follows:
Composite assessable price = Price for Customs Duty Consumption Tax
Taxable Amount = Composite Assessable Price × Tax Rate
Though it’s just a draft for comments, however most of the provisions are already implemented in practice. As a consequence, there should neither be many surprises nor adjustments necessary for businesses once the new law officially comes into effect.
However, if you have any comments, you can provide your comments through the “Information Solicitation System” on the homepage of the website of the Ministry of Finance of the People’s Republic of China or through the “Information Solicitation System” on the homepage of the website of the State Taxation Administration before 26th of Dec, 2019.
In our opinion, the new law will be promulgated in early January of 2020, unless something unexpected happens. We will see.
