Question : What major significance does the reform of VAT transformation will have on the perfection of the VAT system?
Answer :
One major advantage of VAT system is that it can avoid double taxation in the process of production specialization. According to different ways of tax deduction for purchased capital assets, the VAT has three variants: production-type, revenue-type and consumption-type. The production type VAT system does not allow any deduction (or credit) of the VAT for the purchased capital equipment against the output VAT. The tax base is equal to the GDP amount. It is the biggest tax base and double tax is highest. The revenue-type VAT system allows the deduction of VAT for purchased capital equipment against the output VAT to the extent of the input VAT in relation to the depreciation amount charged to the income statement for the current period. The tax base equals to the national income and the tax burden is not as heavy as that under production-type VAT system. The consumption type VAT system allows the deduction of the whole amount of the input VAT for the purchased capital equipment in one go. The tax base here equals the consumption in the GDP. Its tax burden is the lightest and it can completely eliminate double taxation. There are more than 140 countries the world over that adopt the consumption type VAT system.
Other FAQs:
1. What is the implication of the change in tax rules?
2. Is there any change in the scope of income tax?
Contact Our Consultant in Shanghai for more details:
Office: 13C,1399,Beijing Road,Shanghai,200040 China
Hotline: 400-820-2586 (English,Mandarin)
Phone: (8621)6279-1870 (English,Mandarin)
Fax: (8621)6279-1180
Email : consultant.en@handao.net
