VAT reforms to gain pace next year

The Chinese government is embarking on an ambitious reform program for its indirect tax system. The objective is to replace the current dual system of indirect taxes - value added tax (VAT) and business tax (BT) - with a single VAT system, which applies to the entire goods and services sector.

The reform will be implemented progressively over a period of time, with BT being replaced by VAT on a sector-by-sector and province-by-province basis. It started in Shanghai on Jan 1, 2012, with the transition to VAT for "modern services" and transportation sectors, before being extended to the rest of the country on Aug 1, 2013.

The first phase of the VAT pilot program has been implemented relatively smoothly, with many businesses reporting overall easing of their tax burden. Since the initial phase of the VAT pilot program has been completed, attention is now turning to the remaining sectors of the economy that are yet to transition to VAT.