China also issued a circular detailing value added tax incentives. A pilot scheme will take begin in Shanghai starting January 1, 2012, for selected service industries such as transportation, technology research and development, and logistics.

The new applicable VAT rates will be 11 percent and six percent, down from the current rates of seventeen and thirteen percent. Experts say the new tax regime means a fairer tax burden on businesses, as well as helping avoid double taxation.

Under the current tax scheme, products are subject to a value-added tax, or VAT. That’s after the manufacturing stage. When they’re sold, a further business tax is slapped on top. The new tax policy is aimed at avoiding double taxation in the service sector.

Currently, Chinese manufacturers pay a value-added tax levied on their profits, while firms in the service sector pay a business tax based on their sales revenue. This is especially relevant to China’s transportation and building industries.

Bai Chongen, Associate Dean of School of Economic and Management, Tsinghua University, said "Broadly speaking, the value-added tax is only levied on the profits coming from the production process. However, the corporate tax is levied on the gross sales volume. That is to say, there is a scenario where products are taxed twice."

China’s State Council says, this latest reform is aimed at avoiding double taxation, and to support the growth of the service industry.

Zhu Qing, standing member of China Int'l Taxation Research Institute, said "Right now, we still need to pay value-added tax in manufacturing industries while paying corporate tax in service industries respectively. However, some companies in the transportation or building industries are forced to pay double tax."

In addition, experts say this tax revamp could help smaller firms greatly affected in recent months by rising costs and restricted credit.

Source:cntv.cn