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

See all articles by Bin Yang

Bin Yang

Xiamen University - Department of Public Economics

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

Yang, Bin, Extending the VAT to Services in China: Special Difficulties and Choices (March 29, 2012). Journal of Chinese Tax and Policy, Vol. 2, No. 1, pp. 2-10, February 2012, Available at SSRN: https://ssrn.com/abstract=2030715

Bin Yang (Contact Author)

Xiamen University - Department of Public Economics ( email )

Xiamen, Fujian 361005
China

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