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EY: China’s VAT rates need to be simplified

CHINA may modify value-added tax rates this year, with means such as lowering the rate for some life necessities, a tax expert said.

Although there’s no official announcement about how to adjust and simplify the VAT rates, tax experts have suggested that adjustments will be applied to the currently 13 percent rate responding to Premier Li Keqiang's call to simplify the VAT system.

“We have already done some research about the suggestion and it seems this could be possible,” said Kenneth Leung, indirect tax managing partner of EY China.

When delivering the government report to the nation's legislative body on Sunday, Li vowed to simplify the currently four-tier VAT rates into three tiers within this year and announced the government is to nurture a simple, transparent, and fairer tax environment, and further cut tax burden of companies, according to the report.

Experts suggested that if tax authorities confirm that adjustments will be made to the 13 percent rate, there are still various possibilities about how to adjust it.

The government could possibly merge the 13 percent items into 11percent-rate currently applied on transportation, real estate and construction, or create a new rate for the 13 percent and 11 percent items. Kenneth said.

The 13 percent-rate which is currently applied on corps, cooking oil, water, electricity, gas, publications, forage and others was created as a preferential rate to the 17 percent-rate when China applied VAT on trade of goods in the 1990s.

The rates of 11 percent and 6 percent were introduced in 2012 when China started the reform to replace business tax with VAT in the services sectors.

The four-tier rates made China's VAT system among the most complicated ones in the world.

Leung said the conclusion about how to adjust tax rates requires consideration of various aspects as well as the impact on the whole chain of VAT taxpayers.

The three-tier system may be announced towards the end of the year as it takes time for authorities to calculate the impacts of a reduced rate.


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