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China kicks off VAT reform in NE China

BEIJING - China's Ministry of Finance and the State Administration of Taxation have issued a ruling on some issues concerning the scope for offsetting value- added tax (VAT), which means the pilot VAT reform from production-type to consumption-type in northeast China has kicked off.

According to the rule, the reform will be effective from this past July 1.

The reform will be made in the three northeast China provinces of Liaoning, Jilin and Heilongjiang, and apply to equipment manufacturing, petrochemical, metallurgical, shipbuilding, automotive and farm produce processing industries.

With the shift of VAT from production-type to consumption- type, the fixed assets purchased by the taxpayer, goods purchased for creation of fixed assets, fixed assets obtained in the form of financial leasing, and the related transportation fees may be deducted from the taxable amount before collection of VAT.

The reform, which was originally planned for implementation in northeast China earlier this year, was postponed owing to change of the country's macro-economic environment, marked by overheating in some industries. This is because, after value- added tax is changed from production-type to consumption-type, equipment investments of enterprises may be used to offset taxes, which may stimulate the investment desire of enterprises and runs counter to the government's policy goal of cooling down the overheated industries.

Reform of the value-added tax is hailed by many officials and scholars as a potential breakthrough point in China's upcoming first tax system reform since 1994.

The rule says the specific operational procedures for the reform and the transitional measures for 2004 are yet to be made separately.

(Asia Pulse/XIC)

Sep 22, 2004

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