CHINA – LOWER VAT RATES ANNOUNCED

By Tanny Chow, Stone Compass Associates

March 10, 2019

To further deepen the VAT reform in China, Premier Li Keqiang announced lower VAT rates in his Work Report delivered in the second session of the 13th National People’s Congress on 5 March 2019. The 16% VAT rate applicable to manufacturing industry will drop to 13% whereas 10% rate applicable to transportation and construction industries will become 9%.

 

NEW VAT RATE BRACKETS

There will be four VAT brackets, namely 13%, 9%, 6%, 0%. The following table depicts the category of taxable items and associated VAT rates.

No. Category of taxable item VAT rate
1 Sale or import of goods (except no. 9-12 below) 13%
2 Processing, repairing and replacing services 13%
3 Tangible property leasing 13%
4 Real estate property leasing 9%
5 Sales of real estates 9%
6 Construction service 9%
7 Transportation service 9%
8 Transfer of land use right 9%
9 Feeds, fertilizer, pesticide, agricultural machine and film 9%
10 Agriculture produce, edible vegetable oil, edible salt 9%
11 Tap water, heating, cooling, hot water, coal gas, liquefied petroleum gas, natural gas, methane gas, biogas, coal / charcoal products for household use 9%
12 Book, newspaper, magazine, audio-visual products, electronic publication 9%
13 Postal service 9%
14 Basic telecommunication service 9%
15 Premium telecommunication service 6%
16 Financial service 6%
17 Modern service 6%
18 Living service 6%
19 Sale of intangible assets (except land use right) 6%
20 Export of goods 0%
21 Cross-border sales of services and intangible assets within the scope set by State Council 0%

 

LEVY TAX RATES

In general, the levy rates are 3% and 5%, though other reduced rates are also applicable as prescribed by the Ministry of Finance and State Administration of Taxation. The table below illustrates the taxable items and associated levy tax rates.

No. Category of taxable item Levy rate
1 Sales of merchandises 3%
2 Processing, repairing and replacing services 3%
3 Sales of services (except those prescribed by law) 3%
4 Sales of intangible assets 3%
5 Sales of real estates 5%
6 Individual rental housing (5% reduced to 1.5%) 1.5%
7 Sales of used fixed assets, used merchandises (3% reduced to 2%) 2%
8 Small-scale taxpayer (prescribed by law) 3%
9 General taxpayer opting for simplified tax calculation 3%, 5%

 

PRE-PAID TAX RATES

There are three pre-paid tax rates, 2%, 3% and 5%. The table below displays the taxable items and pre-paid tax rates under general and simplified tax calculations.

No. Category of taxable item Pre-paid rate
General calculation Simplified calculation 
1 Sales of construction service 2% 3%
2 Sales of self-developed real estates 3% 3%
3 Real estate operating lease (except individual rental housing) 3% 5%
4 Sales of real estates 5% 5%

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