China's tax overhaul aims to cut business costs

[BEIJING] China has rolled out a value-added tax (VAT) system across all industries that previously had a business tax, in the most ambitious overhaul of its tax regime in three decades.

The world's second-largest economy is stumbling through its slowest growth in a quarter century but is continuing with tough reforms in its transition to a services-oriented economy from one powered by manufacturing.

The government first began experimenting with a VAT in 1979 and started applying the tax to specific sectors in 2012. The final four sectors to adopt a VAT on Sunday are construction, property, finance and life services - which includes food and beverage, healthcare and tourism industries.

Premier Li Keqiang had said the reforms would be adopted by May 1 in his work report at the annual parliament in March.

A business tax directly taxes businesses, whereas a VAT - sometimes known as a goods and services tax - is borne by the end consumer, reducing the burden on companies which are facing rising costs and a slowing economy.

Consumers will pay varying levels of VAT, depending on the industry, China's Vice Minister Shi Yaobin told a news conference in April. Most of the services sector was previously subject to a business tax rate of either 3 or 5 per cent.

REUTERS