On the Development Strategy of China’s Value-Added Tax (VAT) Reform

DONGSHENG JIN, WEIFU JIN

Abstract


Along with the official replacing of Business Tax with value-added Tax (VAT) for
some business sectors in Shanghai’s pilot zone, the issue of VAT reform has
attracted widespread attention from the public. This paper will first outline the
basic concept of VAT, and then briefly elaborate on the advantages and
disadvantages of VAT, the emergence and development of VAT, the introduction
of VAT to China and the course of VAT reform in China. The proposed
implementation of the VAT pilot program in Shanghai is only a fundamental
component of optimising the VAT system. In order to simplify and make the VAT
system efficient, China must continue with its VAT reform in accordance with the
standards of modern VAT.
On 26 October 2011, a State Council executive meeting decided that from 1 Jan
2012 onwards, the VAT system reform will be deepened in pilot zones for some
regions and industries, thus gradually changing from imposing business tax on
certain industries into levying VAT.
Expanding VAT reform is a highlight of the 12th Five-Year plan tax reform. After
the trial, the VAT reform may extend from certain regions and industries to the
entire country and more business sectors respectively, thus delivering benefits to
related industries and enterprises. This reform is beneficial in lowering the price of
goods and services, boosting consumption, improving welfare and accelerating the
transformation of China’s economic development model.

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