The VAT regulations have been amended in the following five areas:
The first is to allow deduction of the input VAT for purchased fixed assets. Before the amendment, input VAT is not allowed to get deducted from the output VAT. The production type VAT system is adopted and that has increased the tax burden of the enterprise buying the machinery and equipment. To reduce the tax burden, the revised VAT regulations remove the practice of such non-deduction, and allow the taxpayer to deduct the input VAT for purchased fixed assets. That helps achieve the transformation of the production type VAT system to one of consumption type.
The second is to plug the tax loophole arising from the transformation. The revised VAT regulations provide that the input VAT for consumables (like vehicles and yachts) is not allowed to get deduction from output VAT since it is easy to mix up corporate consumption with personal consumption that is not relevant to the technological improvement of the enterprise.
The third is to reduce the levy rate for small-scale taxpayer. Before the amendment,small-scale taxpayer who is engaged in production activities is subject to VAT at a 6% levy rate. According to the original VAT regulations, with the approval from the State Council, small-scale taxpayers carrying on production activities and nonproduction activities are taxed at a levy rate of 6% and 4% respectively. After the transformation reform, the tax burden of the VAT ordinary (general) taxpayer has been reduced across the board. To balance the tax burden between the VAT ordinary taxpayer and the small-scale taxpayer and promote the growth of small and medium size enterprises to raise employment level, it is necessary to reduce the tax burden of the small-scale taxpayer. Taking into account the fact that it is commonplace for the small-scale taxpayer to carry on production and non-production activities at the same time, it is difficult to distinguish between the small-scale taxpayer who is doing production business and the one who is not. Therefore, the revised VAT regulations no longer provide for two levy rates for different line of businesses, and fix the levy rate at 3% across the board for the small-scale taxpayer.
The fourth is to incorporate some current VAT policies into the revised VAT regulations, mainly including the deduction rates for agricultural produce and transportation charges, the provisions for the qualifications for being recognized as the VAT general taxpayer, and the abolition of tax exemption for the equipment 5 imported for use in export processing with supplied materials, export processing with samples, and compensation trade.
The fifth is to extend the VAT filing deadline from 10 days to 15 days after the month end in order to provide convenience to taxpayers, improve revenue service level and relieve the workload for handling VAT filing at the counter of the local tax bureaus in accordance with the practices of tax levy and administration. The revised VAT regulations also clarify the issue how to determine the tax withholding agent, the time the tax liabilities arise, the location of paying taxes and the period within which payments should be made for the taxpayer situated outside China.
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