China today replaced all business tax with a
value-added tax (VAT) after extending the policy to cover four new
sectors of construction, real estate, finance and consumer services, as
part of reform agenda to halt economic slowdown in the world’s second
biggest economy.
The inclusion of the four remaining
sectors will bring almost all goods and services under the VAT cover and
is expected to save Chinese businesses billions of dollars.
VAT refers to a tax levied on the difference between a commodity’s price before taxes and its production cost.
Revenue tax refers to a levy on a business’s gross revenues.
The expansion of the VAT scheme is expected to ease tax burdens by more than 500 billion yuan ($76.9 billion) this year.
The VAT scheme first started in 2012 as a pilot program
in Shanghai, covering a number of services including transportation, IT,
and logistics.
It was later expanded nationwide and to cover other businesses.
Over the past four years, the VAT scheme has saved 640 billion yuan in taxes for businesses.
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