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EY: optimized VAT rules are needed for China

CHINA needs to improve value-added tax rules this year to close loopholes and expand tax benefits, EY experts said.

More details will be released after authorities announced new rules in the past two months to clarify taxation issues in asset management, education and training, and property development industries, said Kevin Zhou, a tax partner at EY.

The new rules stipulated that asset managers should pay 6 percent VAT for their interest income on products with fixed returns.

Previously they are levied with 5 percent business tax but the tax was seldom collected because of the difficulties in taxation.

For the education and training sector, the new rules allow non-degree education and training institutions to use a simplified calculation method to pay 3 percent instead of 6 percent VAT on complaints that a shift from business tax to VAT in May last year had lifted tax burden for the sector.

For the property development sector the new rules allowed developers to deduct some demolishing costs from their income in calculating VAT.

“For the asset management sector, detailed rules are expected to be released after the Spring Festival to set practical rules in paying the tax,” Zhou said. “In general the new rules on the three sectors set the tone of this year's VAT policies.”

He said policy priorities this year will be mending the current VAT rules in response to questions raised by the industry.

“When clarifying previous uncertainties, policy makers are likely to lean towards lowering tax burden as were in the education and property development sectors,” Zhou said.

But major changes, such as simplifying the current four-tier tax rates, will be left until a VAT law is made.

The legislation process for a VAT law is expected to start in 2018, Zhou said.


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