November 21, China's Ministry of Finance (MOF) will pilot replacing its turnover tax with a value-added tax (VAT) in Shanghai starting from Jan.1, 2012.

The pilot reform will focus on the city’s transport sector and some service sectors, the ministry said in a statement on its website.

The announcement came after the State Council, or the Cabinet, said on Oct. 26 that it will continue the reform of VAT and initiate a pilot program to replace turnover tax with VAT.

The reform aims to diminish double taxation and reduce tax burdens for the service sector, a MOF official told Chinanews.com.

Turnover tax is levied on companies’ total sales revenue or turnover, while a VAT refers to a tax levied on the difference between a commodity's price before taxes and its cost of production.

Two types of VAT rates will be added to the current VAT rates which also include two ranks, 17% and 13%, respectively, the statement said.

A new 11% VAT rate will apply to the transport sector and a 6% rate to sectors related to modern services including research and development, technological services, culture, logistics and consultation.

The statement said the trial program will help taxation authorities accumulate experience before the tax replacement scheme is extended to the whole nation.

Source:21cbh.com