• Service: Tax, Global Indirect Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 5/5/2014

China - VAT reforms for telecommunications sector 

May 5:  Recently issued guidelines address the value added tax (VAT) reforms for the telecommunications sector in China.

China’s Ministry of Finance and the State Administration of Taxation jointly issued a circular—Caishui [2014] 43 (29 April 2014)—providing that VAT is to replace the business tax for the telecommunications sector, effective 1 June 2014.

Circular 43 also provides for the following rates of VAT:

  • 11% for basic telecommunications services
  • 6% for value-added telecommunications services

Also, with the transition to a VAT system from the business tax regime, a number of concessions will be discontinued—thereby affecting a broader group of taxpayers, including foreign telecommunications providers, as well as new forms of telecommunications service providers (such as the digitized services industry).

KPMG observation

The transition from business tax to VAT for the telecommunications sector has been anticipated. However, the release of the new circular provides a short transition period, with VAT to commence from 1 June 2014. This effective date may prove to be challenging given the complexities associated with having multiple VAT rates in the one industry.

Read a May 2014 report prepared by the KPMG member firm in China: VAT Reforms for the Telecommunications Sector

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