Beijing readies trial VAT for services

Beijing is in the early stage of a trial to put a value-added tax (VAT) on services as part of an overhaul of its tax laws.

VAT previously applied to goods but not on services, said Sarah Chin Pui Pui, tax managing partner of Deloitte Touche Tohmatsu.

Beijing said that under the new tax regime, most services would have a VAT of 6 per cent but transport firms would have a VAT of 11 per cent. Chin said the central government aimed to eventually replace the business tax with VAT.

"The shift from business tax towards VAT is a major reform that will push the restructuring of the economy and the change of direction in the nation's development," the State Administration of Taxation said. "This reform will eliminate repeat taxation, strengthen the competitiveness of services, reduce the tax burden on companies, support the development of small companies and increase employment."

The administration said the switch to VAT would also expand the scale of services and raise their quality.

Chin said VAT reform created a criterion for deduction of tax, unlike business tax, which could not be deducted.

Shanghai was the first city to implement the new VAT regime on January 1, followed by Beijing on September 1 and Jiangsu and Anhui provinces on October 1.