The standard rate of VAT in China is 17%. VAT is imposed on sale and import of goods and supply of certain services. There is a reduced rate of 13% that applies to products such as books and types of oils. Exporters are entitled to V.A.T. refund for materials bought in China.
China started to implement VAT in 1984 on 24 specified taxable items. In 1994, corresponding with reform goal of building up socialist market economy system and pursuant to the guideline of "unification of taxation management, equity of tax burden, simplification of tax system, reasonalization of revenue distribution relations and guarantee of the financial revenue", the former taxation system undertook an overall and structure reform. On December 13, 1993, the State Council of China promulgated "The Provisional Regulation of the People's Republic of China on Value Added Tax"，which put into effect on January 1, 1994 and is currently effective in China.
VAT is administered by the State Administration of Taxation (the import VAT is collected by the customs on behalf), and the revenue from it is shared between the central government (75%) and local governments (25%). VAT is the major source of fiscal revenue for the Government of China, particularly the central government. In 2002, the revenue from VAT is 814.1 billion yuan, accounting for 47.61% of the state total tax revenue of the year, which is the first biggest tax in China.
Taxable Items of China VAT
Based on different taxable goods, services, different flat rates and zero rate are adopted. The table of the taxable items and rates is as following:
(1) Exportation of goods(except otherwise stimulated by the state)
(2) Agriculture, forestry, products of animal husbandry, aquatic products;
Edible vegetable and grain duplicates;
Tap water, heating, cooling, hot air supplying, hot water, gas, liquefied petroleum gas, natural gas, coal/charcoal products for household use;
Book, newspapers, magazines(excluding the newspapers and magazines distributed by the post department)
Feeds, chemical fertilizers, agricultural chemicals, agricultural machinery and plastic converting film for farming;
Selected metal mineral products, Selected non-metal mineral products, coal.
(3 ) Crude oil, mine salt and goods other than those listed above; taxable services.
Computation of Tax Payable
There are two kinds of VAT taxpayer in China by the criterion of turnover of sale goods & services and condition of accounting system. One is normal taxpayer, the other is small taxpayer. The standard of decision of Small Taxpayer is (1) where the taxpayer is engaged in the production of goods or in the provision of taxable services as his sole or principal business and his annual turnover is less than RMB ¥1,000,000; or (2) where the taxpayer is engaged in the wholesale or retail of goods and his annual turnover is less than RMB ¥ 1,800,000. However, A Small taxpayer who maintains a sound accounting system and is able to provide accurate accounting records for taxation purposes may be registered as a General Taxpayer.
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