VAT is about to be legislated! What adjustments are there?
On December 27, the draft value-added tax law was submitted to the Standing Committee of the National People’s Congress for deliberation for the first time. The legislation generally follows the idea of shifting the tax system, keeping the current tax system framework and tax burden level basically unchanged, and making necessary adjustments to some contents according to the actual situation. It is understood that in December 1993, the State Council promulgated the “Provisional Regulations of the People’s Republic of China on Value-Added Tax” (hereinafter referred to as the “Regulations”), which levy value-added tax on units and individuals that sell goods, process, repair and replace labor services, and import goods in my country.
In March 2016, the Ministry of Finance and the State Administration of Taxation jointly issued the “Notice on Comprehensively Launching the Pilot Project of Levying Value-Added Tax Instead of Business Tax”, which included all original business taxpayers in the construction industry, real estate industry, financial industry, and life service industry, into value-added tax range. In 2017, the State Council abolished the “Provisional Regulations of the People’s Republic of China on Business Tax” and made some amendments to the “Regulations”. This legislation, generally in accordance with the idea of shifting the tax system, keeps the current tax system framework and tax burden level basically unchanged, and upgrades the “Regulations” and relevant policy provisions to law. Drawing on international experience, the draft stipulates that units and individuals that have taxable transactions in China and whose sales have reached the value-added tax threshold, as well as consignees of imported goods, are VAT taxpayers. Units and individuals whose sales volume does not reach the value-added tax threshold are not value-added taxpayers, but they can voluntarily choose to register as value-added taxpayers and pay value-added tax.
The draft clarifies that sales of goods, services, intangible assets, real estate, and financial commodities should be subject to value-added tax. Among them, the sale of goods, real estate, and financial products refers to the paid transfer of the ownership of goods, real estate, and financial products; the sale of intangible assets refers to the paid transfer of the ownership or use rights of intangible assets. In addition, VAT is an extra-price tax, and the sales of taxable transactions do not include the VAT amount. In terms of tax rates, the draft maintains the current three tax rates unchanged.
Unless otherwise specified, the tax rate is 13% for sales of goods, processing, repair and repair services, leasing services of tangible movable properties, and import of goods; sales of transportation, postal services, basic telecommunications, construction, real estate leasing services, sales of real estate, transfer of land use rights. Unless otherwise specified, the tax rate for sales or import of agricultural products and other goods is 9%; the tax rate for sales of other services and intangible assets is 6%.
At the same time, the draft also stipulates that the tax rate for taxpayers exporting goods, domestic units and individuals’ cross-border sales of services and intangible assets within the scope specified by the State Council is zero. In addition, the draft clarifies that the value-added tax collection rate is 3%, and the 5% collection rate applicable to the current real estate is not reflected in the draft. At the same time, the draft makes adjustments to deemed sales, only retaining units and individual industrial and commercial households to use self-produced or entrusted processed goods for collective welfare or personal consumption; units and individual industrial and commercial households donate goods free of charge, except for public welfare undertakings; Units and individuals donate intangible assets, real estate or financial products free of charge, except for public welfare undertakings.
For the current “consignment”, “transfer”, “use for non-tax items”, “investment” and “distribution” are all removed from deemed sales. In terms of tax incentives, the draft maintains the current tax incentive items unchanged, exempting value-added tax on self-produced agricultural products sold by agricultural producers, services provided by individuals with disabilities, and medical services provided by relevant medical institutions. In addition, the State Council may formulate special preferential policies for value-added tax in accordance with the needs of national economic and social development, or where emergencies and other reasons have a major impact on the business activities of taxpayers.