The Importance of China’s New VAT – BBH

By FXStreet Analysts at Brown Brothers Harriman explained that yesterday, China announced one of the most important tax reforms of the past twenty years.

Key Quotes:

“It is replacing a business tax on gross revenue for non-manufacturing companies with a VAT. Manufacturing companies have been subject to a VAT approach for a few years. The reform extends it from manufacturing and a few services in a pilot program to industry-wide application. It will now cover construction, real estate, finance and consumer services.

The shift to the VAT is expected to reduce the service sector’s tax bill by CNY500 bln (~$77 bln) or 0.7% of GDP. A report indicated that businesses will pay 11% VAT compared with the previous 5.5% business tax. While the rate is higher, the base is considerably smaller. The break is consistent with the government’s modest stimulative measures. It denies the government of revenue, but it was already built into this year’s budget and incorporated in the deficit projection of 3% of GDP.

The shift to a VAT for services will help facilitate the economic transition from manufacturing to services as the economy matures. The manufacturing sector has …read more

Source:: FX Street