Extending the VAT to Services in China: Special Difficulties and Choices
Journal of Chinese Tax and Policy, Vol. 2, No. 1, pp. 2-10, February 2012
17 Pages Posted: 29 Mar 2012 Last revised: 11 Sep 2012
Date Written: March 29, 2012
Abstract
The reason for extending the Value Added Tax (VAT) to the services sector in China is not sufficiently powerful. Just looking at the services sector, substituting the sales tax with a VAT gives rise to many difficulties in terms of system design and implementation, and the possible problems may be greater in number than remaining with the status quo. If the neutrality principle where the tax burden remains unchanged is to continue, then broadening the tax scope is less advantageous than not doing so. If the neutrality principle can be deviated from, then there are fewer obstacles to extend the VAT to the transport, construction and real estate industries, but financial services should remain at the status quo, i.e. levying the sales tax.
Keywords: value added tax, VAT base expansion, Chinese tax, services
JEL Classification: H00, H2, H3, K34
Suggested Citation: Suggested Citation