Shanghai’s VAT pilot gives edge to suppliers

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On 16 November 2011, China released the details of a long-awaited pilot programme for the reform of its turnover tax regime that will result in the merger of value-added tax (VAT) and business tax (BT) into a single tax.

The pilot programme started in Shanghai on 1 January 2012. The suppliers in Shanghai covered by the pilot programme have competitive advantages over other suppliers in many aspects. Therefore, other localities in China have had an incentive to join the programme as soon as possible in order to put suppliers in their jurisdictions back on equal footing. Some media have reported that Beijing has already obtained the approval to roll out the pilot programme on 1 July 2012. Some other major locations such as Tianjin, Chongqing, Shenzhen and Jiangsu have applications pending with the central government to gain entry into the programme.

101826585The Shanghai pilot programme covers transportation service industries and certain “modern service” industries, such as R&D and technology services, advertising services and logistics services.

However, the pilot programme in Beijing might cover different industries because the overall structure of its service sector is different from Shanghai’s.

Shanghai is also applying to expand the programme to cover financial services, telecommunications services and lifestyle services.

Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. Readers can contact Zhang Danian at Baker & McKenzie in Shanghai at danian.zhang@bakermckenzie.com