CHINA has announced new rules governing amortisation of deemed input value-added tax (VAT) on inventories, clearing up uncertainties on the recoverability of the tax affecting the profits of companies.
The rules, jointly issued by the Ministry of Finance and the State Tax Bureau, will apply to foreign-invested enterprises and Hong Kong-listed state-owned units.
'From the accounting perspective, the rules will help accountants and auditors access the recoverability of the deemed input VAT more accurately,' said Tommy Fung, assistant director of professional standards division of the Hong Kong Society of Accountants.
Under the new system, firms are allowed to amortise the deemed input VAT over five years at 20 per cent a year.
It also allows firms a five per cent fluctuation, depending on the VAT collection by area governments, which will mean a minimum rate of 15 per cent and a maximum of 25 per cent.
As a big improvement, the new rules reverse the previous requirement which asks the companies to have lower ending inventory than the beginning level before they can offset the VAT payables.
