Estimated tax-cut for over 120 Billion Yuan

Generally relieved tax bearing to stimulate investment and expansion on domestic demands
In accordance with the VAT transformation program, the tax-bearing enterprises are entitled to enjoy VAT-deduction for purchasing the machinery or equipments. As a significant policy on tax-cutting, VAT transformation program will eliminate incentives for double taxation arising from the current production-based VAT system performed in China and relieves tax-burden for equipments or machinery investment suffered by enterprises, though, with the precondition that the on-going tax rate is still prevailing. To avoid double taxation occurred in equipments or machinery purchase, it will impose positive impact on setting a stable & rapid pace for economical development in China by attracting investment, expanding domestic demands, as well as promoting technology upgrading, industrial structure adjustment and pattern alteration of economical growth.

VAT system can be divided into three categories, respectively are production-based, revenue-based and consumption-based. For production-based VAT, enterprise shall not exempt from those paid VAT occurred in purchasing fixed assets and among three types of system, its tax base, equivalent to GNP is the maximum one; the enterprises suffer from most serious double taxation under such system. Allowing for one-time VAT deduction levied on equipments or machinery purchasing, consumption-based system boasts thorough elimination on double taxation as its tax base, known as the minimum one, is equivalent to final consumption. Among over 140 countries performing VAT system worldwide, consumption-based system prevails in a majority of those countries. In China, current production-based VAT system will be gradually transited to the main stream, that is consumption-based.
With continuous expansion of international financial crisis as well as a slow-down economical development worldwide, it has great significances for China government to enforce VAT transformation program for it will enhance the competitive edges and anti-risk capacity of general enterprises as well as stimulate their sustaining development to combat affect imposed by worldwide financial crisis on national economy. It is estimated that state revenue will decrease 120 Billion Yuan which is a history-making records for its unprecedented percentage for tax-cutting in China.

Avoid double taxation on enterprises for purchasing machinery or equipments.

Exclusive limitation on district and industry, motor cars and yacht not included.

Below are main content of this VAT transformation program. Since January 1, 2009, on the precondition that the on-going tax rate is still prevailing, the general VAT payers (without limitation on district and industry) nationwide are allowed to exempt from the section of VAT which is already paid in purchasing corresponding machinery or equipments. The balance of withholding VAT shall be carried forward to the next term. In order to prevent emergence of any tax loophole, those equipments whose VAT levied can’t be clearly differentiated from the personal consumption tax shall not fall within the applicable scope of the policy.