Beijing set to try out VAT starting July 1

The Beijing tax authorities will start levying value-added tax (VAT) on the transportation sector and certain services sectors, but some companies expressed concern yesterday about the new tax.

Beijing Municipal Office of the State Administration of Taxation (SAT) published on its website Monday forms to be filled in by companies affected by the VAT program, without disclosing more details, such as the tax rate. VAT will replace the existing business tax as part of a reform program designed to lower firms' tax burden.

"The program will start on July 1," a staff member of the Beijing SAT office who declined to be named told the Global Times yesterday.

The staff member also noted that the program in Beijing would be similar to the one launched in January in Shanghai, the first Chinese city to implement the VAT reform. Staff at the Beijing SAT office have received training based on the guidelines used in Shanghai.

"Understanding the registration and compliance requirements for VAT, the impact on processes, systems and financial position, and also developing a plan to make the necessary changes to get ready for the launch, are important for Beijing's pilot program," Alan Wu, China national indirect tax leader for PricewaterhouseCoopers, told the Global Times yesterday.

VAT can in theory help lower the overall tax burden for many companies, because it can avoid duplicate taxation. But some transportation firms complained that the reform will cause their taxes to rise.

"The VAT rate is too high in Shanghai's trial," Zhang Zhenkai, a cashier at Beijing Kairuitong Logistics, told the Global Times yesterday,

According to Shanghai's reform program, the VAT rate is 11 percent, a significant rise from the 3 percent companies paid under the previous business tax.

But Wu noted that although the rate is higher, transportation firms are entitled to claim back VAT incurred on business purchases.

"Previously under the business tax, they did not enjoy this benefit," said Wu.