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People's Daily Online>>China Business

Shanghai tests new business tax for services

By Feng Jianmin  (Shanghai Daily)

08:26, October 27, 2011

China will start to lower corporate taxes in selected service industries next year under a trial scheme in Shanghai as the government acts to support companies saddled by rising costs and slowing growth.

Transportation and some service companies in Shanghai will have their business tax replaced a by value-added tax, a majority of which is deductible, starting January 1, the State Council, or Cabinet, said yesterday in a statement.

The idea is to eventually expand the program to the whole nation, the statement said.

The country will also introduce two lower-rate VAT categories as part of the tax reform, it said.

The two new VAT rates will be 11 percent and 6 percent in addition to the existing VAT brackets of 17 percent and 13 percent, according to the statement.

Currently, the VAT applies only to enterprises or individuals who sell merchandise, provide processing, repair or assembly service, or import goods within China.

Unlike the business tax, which is charged on a company's revenue regardless of its costs, VAT can have such costs as fuel and equipment expenses deducted.

A large number of service enterprises now operating on high costs do not enjoy the benefits of VAT.

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