6 May 2016

The End of China’s Business Tax.

On 1 May 2016, China officially replaced the existing Business Tax (BT) system with a modern Value Added Tax (VAT) system. The government first introduced a pilot version in 2012 and has been steadily increasing the amount of sectors included in the scheme, with full implementation across all industries since last weekend.

How Will This Affect Your Business?

1) Compliance: Taxpayers have to take immediate action to prepare for future VAT compliance, including reporting and invoice management.

2) Supply Chain: This reform will impact your supply chain, especially your agreements with suppliers and/or customers.

3) Individual Income Tax (IIT): While BT revenue was collected by local tax bureaus, VAT revenue is collected by the State Administration of Taxation (SAT). With the reform, there will be a substantial drop of revenue for local tax bureaus. IIT will now be the major tax income for them, and we foresee more stringent checking and collection.

4) Technology: Taxpayers must make sure to update their ERP systems to reflect the new VAT compliance requirements.