Comprehensive Implementation of VAT in All Industries

On March 2016, the Standing Committee of the State Council announced detailed policies on comprehensive VAT reform in Cai Shui [2016] No. 36 <Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax> (“Circular 36”).

Starting from 1 May 2016, four service industries, construction, real estate, finance and consumer services, will be subject to VAT rather than Business Tax. This means VAT reforms will be implemented across all industries and the ending of dual tax system with Business Tax. After 66 years’ implement, the Business Tax officially stepped down from the stage of history of China. Let’s have an overview of the milestones of this pilot program of VAT in lieu of Business Tax in below chart.


According to Circular 36, VAT tax rates for services are 0%, 6%, 11% and 17% and the levy collection rate is 3% as listed in below:

No. Description Tax Rate
1 Transportation, Postal, Basic Telecommunication, Construction, Lease of real estate, Sales of Real Estate, Transferring Land Use Right Services. 11%
2 Lease of movable tangible assets Service. 17%
3 Cross-border Taxable Services provided by Domestic entity or individual. 0%
4 Other services. ( including but not limited to Consulting, Finance and Value-added Telecommunications Services) 6%

This pilot program is aim to upgrade the industrial structure and improve the VAT chain. More companies may choose to outsource services and as a result the service industry will be promoted by this new VAT policy.