October 27, The State Council, or China's Cabinet, said on Wednesday it will continue the reform of value-added tax (VAT) and initiate a pilot program to replace turnover tax with VAT.

The government will replace turnover tax with VAT on selected service sectors in some regions and industries from Jan. 1, 2012.

The pilot will be trialed in Shanghai’s transport and some modern service industries, and extended to other services in other parts of the nations if the conditions are “good”, according to the statement.

The reform aims to incrementally replace turnover tax with VAT in all sectors nationwide, it said.

Under the reform, VAT rates will be lowered from 17% and 13% currently to 11% and 6%.

Lu Zhengwei, chief economist at Industrial Bank, said the pilot program would probably be the first step in the adjustment of China’s taxation structure in the coming years.

The reform aims to diminish double taxation and reduce tax burdens for the service sector, said Jia Kang, director of the Research Institute for Fiscal Science under the Ministry of Finance.

Turnover tax refers to a tax on the gross revenue of a business, while a VAT refers to a tax levied on the difference between a commodity's price before taxes and its cost of production.

Source:21cbh.com