China has officially approved a new Value-Added Tax (VAT) law, set to take effect on January 1, 2026.

The legislation passed during the National People’s Congress Standing Committee session that concluded on December 25, consolidates existing regulations into a single legal framework.

VAT, which constitutes the largest tax category in China, accounted for approximately 38% of national tax revenue in 2023, according to official data.

The law aims to codify tax policies, marking significant progress in implementing the principle of statutory taxation.

According to a report by the state news agency Xinhua, “With the introduction of the VAT Law, 14 tax categories out of 18 in China have their own laws, covering the majority of tax revenue.”

While the report did not detail specific provisions, the latest draft included exemptions for certain agricultural products, imported scientific research equipment, and goods or services related to welfare institutions, including nurseries and elderly care facilities.

Additionally, the government retains the flexibility to expand tax deductibles to support specific sectors or businesses.

China’s move to formalise VAT regulations comes as its economy faces challenges, including weakening domestic demand. VAT revenue for the first 11 months of 2024 fell by 4.7% year-on-year to 6.1 trillion yuan (S$1.2 trillion), although November showed a modest rebound of 1.36%.

“The rebound in VAT reflects improving economic vitality, as sales and business activity recover. It may also indicate a recovery in industrial profits, further supporting economic momentum,” said Tommy Xie, head of Asia macro research at OCBC.

The VAT reform builds on earlier measures, such as the 2019 VAT rate cuts for manufacturers and the transportation and construction sectors.

In addition, tax incentives introduced in 2023 aim to bolster struggling industries, including the crisis-hit property market and research institutions, with exemptions and refund extensions through 2027.

Copyright © 2022 Nigerian Tribune Provided by SyndiGate Media Inc. (Syndigate.info).