Chinese walker

The old VAT regulations have played a positive role in ensuring the fiscal revenue and regulate the national economic development in the past. But the old VAT regulations are production type VAT that did not allow the input VAT for the purchased fixed assets to be offset against output VAT, and that has resulted in double taxation and put a brake on the enterprise’s incentive for its technological  improvement. The voice in all sectors for the VAT transformation reform has got very loud in view of the development and change in social and economic environment these years. The issue that the VAT transformation reform was to be introduced at the appropriate time was raised during the third plenary of the 16th session of the China Communist Party clearly. The “11th Five-year Plan” clearly outlines that the VAT reform should be completed during the period of the 11th Five-year Plan. With the approval from the State Council, as from 1st July 2004, the experimental trials have been launched in the Northeastern and Central regions and that gives us successful experiences. To eliminate double taxation, reduce the tax burden, encouraged technological improvement and industrial structure adjustment, it is necessary to introduce the transformation reform on a nationwide scale. The introduction of VAT transformation reform in full scale is especially urgent, as a measure of coping with the negative impact of the international financial crises on the economic development of our country, increasing domestic demand, promoting investment in equipment and expansion in production, and maintaining the steady and relatively fast growth of our country’s economy. Therefore, the State Council made a decision to implement the VAT transformation reform on a nationwide basis as from 1st January 2009.

The core issue for the VAT transformation reform is that the input VAT for the purchased machinery is deductible from the output VAT in the computation of the VAT payable. This change is inconsistent with the provisions in the old VAT regulation that the input VAT for purchased fixed assets is not deductible from the output VAT. Therefore, it is necessary to amend the VAT regulations before the VAT
transformation reform is being introduced.

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