How China’s VAT reform is changing its economy

China introduced VAT in 1994 as a single nationwide tax combined with business tax (BT). VAT is responsible for the added value generated in the sale, provision of processing, reparation and maintenance. These tax rates are 17%, 13% and 5% according to the nature of the taxpayer and of the goods concerned. In contrast, services in transportation, construction, finance, sports and culture and the transfer of intangible assets (including copyright, trademark, patent, know-how, goodwill, land and building titles) are subject to BT ranging from 3% to 5%, considering the turnover amount of the service or transfer. For VAT to impose the added value, the goods sold by VAT taxpayers is termed as output VAT and calculated by multiplying with the applicable VAT rate. Moreover, when purchasing raw materials and other VAT taxable items, the output VAT for the seller will be termed as input VAT for the VAT taxpayer (the...