Issuance Date: November 17, 2011     Source: General Office of the State Administration of Taxation
    On November 16, 2011, the Ministry of Finance and the State Administration of Taxation, after approved by the State Council, co-issued the Pilot Scheme on Switching from Business Tax to Value Added Tax, and printed and distributed the Implementation Measures for the Pilot Scheme in Shanghai on Switching from Business Tax to VAT in Transportation and Certain Modern Service Industries, the Regulations on Relevant Matters Concerning the Pilot Scheme on Switching from Business Tax to VAT in Transportation and Certain Modern Service Industries, and the Regulations on the Transitional Policies Concerning the Pilot Scheme on Switching from Business Tax to VAT in Transportation and Certain Modern Service Industries. The pilot scheme in Shanghai on switching from business tax to VAT in transportation and certain modern service industries will come into effect on January 1, 2012.
    In 2009, the full-scale VAT conversion reform was implemented. This reform shall be deemed as another significant reform to the goods and labor tax system and the important structural tax cut measures. The reform will help remove double taxation for goods and labor service, namely business tax and VAT, and provide systematic supports for deepening professional division of labor and accelerating the development of modern service sector by optimizing the structure of tax system and easing the tax burden, thus promoting the transformation of economic development model and economic restructuring.
    The main contents of this pilot scheme can be described as follows. Based on two current VAT tax rates like 17% and 13%, two low tax rates like 11% and 6% are provided as well. Specifically, 11% applies to transportation industry while 6% is adopted by such modern service sectors as R&D and technical service, cultural and creative industry, logistic and supportive service, and visa consulting service. The business tax reduction and exemption policy, which used to be enjoyed by the pilot tax payers' technological transfers, will be replaced by VAT exemption or refunding on tax payment. The current VAT's ordinary tax payers, which purchase services from pilot tax payers, may have input tax withheld. Besides, the applicable policy on balance taxing of business tax shall remain valid within the period of pilot work, but the income whose business tax is levied in the pilot area shall have its VAT collected in the same area.
    The conversion from business tax to VAT involves a large scope, and some positive experiences will be reaped for the nationwide operation after we get Shanghai's transportation and certain modern service industries to get involved in the pilot scheme.