China's VAT reform cuts revenue by 192b yuan

A pilot tax reduction scheme to replace turnover tax with value added tax (VAT) led to a fall in fiscal revenue of 191.8 billion yuan ($31.3 billion) in 2014, China's taxation authority said on Wednesday.

The State Administration of Taxation (SAT) said that 4.1 million taxpayers had applied to join the scheme since it was launched in 2012, with over 95 percent of them now paying less tax.

Turnover tax is a tax on the gross revenue of a business, while a VAT is levied on the difference between a commodity's price before taxes and its cost of production. The policy change is considered a taxation reduction, especially for the service sector.

The scheme was expanded to state-dominated sectors such as railways and postal services last year, with tax reductions of 800 million yuan and 400 million yuan respectively.

VAT reform is part of a tax reduction package to facilitate economic restructuring. One third of taxpayers in Guangdong have optimized their business structure by delineating businesses in the service sector and the secondary sector.

VAT reform will soon be expanded to sectors like construction, real estate and insurance, which is expected to generate another eight million VAT taxpayers.