China will grant a 14-month grace period to the asset management industry on the adoption of a valued added tax (VAT), following complaints that such a levy could impair the sector and trigger double taxation.
A Finance Ministry notice on Wednesday said that asset managers will be levied with VAT for returns on assets under management from July 1, 2017. Initially, the industry had been required to pay VAT instead of a business tax as of May 1, 2016.
Taxes that have already been paid under the new tax system can be used to deduct from those that will begin once the grace period expires in July.
Experts said the announcement would be greeted with mixed emotions, as it’s clear that the government will push ahead with some of the more controversial elements of the policy.
“Today’s notice came as both good and bad news for the asset managing industry,” said Stella Fu, a PwC tax partner in Shanghai. “The good news is that the asset managers enjoy a break, however the bad news is that authorities reiterated again that asset managers still bear the burden to pay the tax – not withholding agent for their products.”
A December policy statement jointly issued by the Finance Ministry and the State Administration of Taxation, ruled that assets managers, including fund houses, trustees and banks, are required to pay the tax on the returns generated by their investment products.