As the US increases customs rates with the rest of the world, the State Council of China has decided to reduce the current VAT rate.
2018 began with a war on customs duties that shocked the world economy. To avoid kickbacks and further stimulate the economic growth, China State Council decided to reduce the current VAT rate starting from May 1st. The current VAT was changed by the circular Cai Shui 32 (2018), issued by Ministry of Finance and State Administration of Taxation this March 2018.
The new rate goes from 17% to 16%
The circular states that all transactions subject to the previous 17% VAT rate will be subject to the new 16% VAT rate. Not only that, even those products that already had a heavy discount on VAT will see the VAT rate decrease from 11% to 10%, together with the decrease in VAT applied to agricultural products, which will be reduced to 10%.
This change also means that all those companies with annual sales contracts (on products such as sales of goods, import of components and materials, etc.) must verify their agreements and maintain or change prices accordingly. All goods that are affected by the VAT change must be adjusted to the new price.
The companies that carried out export procedures before May 1st may apply for the VAT refund according to the current VAT rebate rate and further adjustments may also have an impact in the next future on the VAT refund rates of 5%, 6%, 9%, 11%, 13% and 15%.
Within the Cai Shui 32 circular there are also new measures that unify the threshold for small tax payers
But talking about numbers, what could be the savings for companies? It is expected that the tax burden on enterprises and individuals will decrease by more than 800 billion this year. Continuing in this way the positive trend of the last 5 years which has saved companies a total of 2.1 trillion CNY.
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