China’s proposed new VAT law faces second review, hopes to alleviate burden on enterprises

Revisions to China’s proposed value-added tax (VAT) law will be considered by legislators this week, with hopes that they will make it easier for policymakers to extend preferences for taxpayers and alleviate the burden on enterprises.

The second reading of the revisions to the proposed law, which covers the central government’s largest revenue source, will be conducted by the Standing Committee of the National People’s Congress (NPC) by Friday.

Last year, VAT revenue in China reached around 4.87 trillion yuan (US$669 billion).

Since the first draft of the law was released in December, the Standing Committee has added improvements to the system for small-scale taxpayers – generally defined as having an annual taxation base of below 5 million yuan - to offer a simpler method of tax calculation and also offered more refund methods.

The updated draft also includes delegating certain power for the State Council to formulate the requirements of tax incentives, while also clarifying the scope for simplified tax calculations.

“The VAT effectively reduces the tax burden on enterprises … the draft law has absorbed the reform achievements of the VAT credit refund in recent years,” said Yang Heqing, a spokesman for the legislative affairs division under the NPC Standing Committee.

Weak fiscal revenues and sagging market confidence amid China’s waning economic momentum have led Beijing to review its tax policies.