Shanghai Offers Fiscal Support to Promote VAT Reform

January 30, 2012 Posted by China Briefing Reading Time: 3 minutes

Jan. 30 – Shanghai’s newly included value-added tax (VAT) payers (pilot enterprises) may be able to receive fiscal compensation if they see increases in their actual tax burdens under the new tax scheme, local authorities said recently.

The focus of the ongoing VAT reform is to reduce duplicate taxation and extend supply chains that are eligible for VAT deductions, the local government emphasized.

At the “Shanghai VAT Pilot Reform Forum” held on January 18, officials from the municipal finance and tax bureaus introduced a series of fiscally supportive measures the government will offer during the transition period of the reform.

Pilot enterprises will be asked to fill out a form declaring their tax burden changes from the time when they were subject to business tax, and taxpayers that find increases in their actual tax burdens under the new tax regime can apply for fiscal compensation from the local finance and tax departments.

Pilot enterprises that encounter difficulty issuing VAT special invoices may also receive fiscal compensation during the transition period. The government promised to strengthen related regulations to optimize the VAT recovery chains in a bid to dispel taxpayer concerns over a potential increase in costs brought by the incomplete implementation of the VAT reform.

Based on the local authority’s verification of pilot enterprises’ actual tax burden changes, the fiscal compensation fund will be prepaid to eligible enterprises. In principle, the fund will arrive quarterly and will be verified annually.

According to a report by Xinhua News Agency, approximately 120,000 enterprises have been recognized as new VAT payers since the VAT reform kicked off in Shanghai on January 1 this year. Among them, around 29 percent are general taxpayers and 71 percent are small-scale taxpayers.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China. The firm specializes in assisting foreign enterprises with their tax obligations. For further advice and specifics relating to these recent measures, please email china@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

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