VAT completely replaces Business Tax on May 1, 2016
April 30, 2016
This is a brief update of our newsletter article on the same subject matter dated March 15, 2016.
Since the issuance of Notice Caishui  No. 32 on March 7, 2016, the PRC Ministry of Finance and State Administration of Taxation have subsequently issued a series of tax circulars (Subsequent Tax Circulars) in March and April 2016 to implement the collection of value added tax (VAT) on revenue from construction, real estate, financial services and services relating to people’s daily life; these services sectors had remained subject to Business Tax (BT) as of April 30, 2016 (Remaining Service Sectors).
Effective from May 1, 2016, China’s tax authorities will start imposing VAT on revenue from the Remaining Service Sectors, and Business Tax, which co-existed with VAT for over 20 years, ceases to exist. May 1, 2016 marks the end of the BT-to-VAT reform as a trial program, and the beginning of full-fledged VAT system covering all of China’s manufacturing, sales and service sectors.
Pursuant to the State Council decision and the Subsequent Tax Circulars, the statutory rates of VAT applicable to the Remaining Service Sectors are as follows:
The State Council, China’s Cabinet which has been authorized by the nation’s legislature to trial implement the VAT system through issuance of administrative regulations, took a top-down and heavy-handed approach in substituting VAT for BT vis-à-vis the Remaining Service Sectors. Thus, the PRC Ministry of Finance and State Administration of Taxation had less than three months to put together BT-to-VAT transitioning and VAT collection mechanisms for the Remaining Service Sectors. It goes without saying that there will be glitches here and there in the remaining months of this year.
Clients should consult their tax advisors on the imminent impact on their business operations in China.