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People's Daily Online>>China Business

VAT reform to benefit 120,000 businesses in Shanghai

By Feng Jianmin (Shanghai Daily)

16:44, December 30, 2011

Majority of Shanghai's service companies participating in the value-added tax reform starting next month will benefit from lower taxes, and the government will offer subsidies to companies that may pay higher tax due to the reform, local tax officials said today.

About 120,000 Shanghai-registered service companies will switch from business tax to VAT next year, of which 85,000 are small taxpayers whose annual revenue is below 5 million yuan, the Shanghai Taxation Bureau said in a press conference this morning.

The bureau expects a "substantial drop" in tax revenue as the new scheme is intended to relieve the burden of many service companies. The municipal government will team up with district administrations to subsidize companies paying more tax after the reform.

Starting from January 1, an 11 percent VAT will be levied on transportation companies, including airlines and shipping firms. A 6 percent VAT will be imposed on companies engaged in technology development, IT, logistics support, and consulting services, according to a new rule made by the State Council last month.

Real estate agencies will pay a 17 percent value-added tax, while smaller service firms will be taxed 3 percent.

Unlike the business tax, which bites off 3 to 20 percent of a company's total revenue regardless of its operating cost, the VAT allows companies to claim "input tax credit" such as expenses for machinery, fuel, other goods and services that are subject to VAT.

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