BEIJING (Reuters) – China approved a value-added tax law on Wednesday that will take effect on Jan. 1, 2026, official Xinhua said, bringing back previous regulations that have included exempting items from the tax.
VAT, China's largest tax category, accounted for about 38% of national tax revenue in 2023, official data show.
The report did not detail the provisions of the law. The latest draft included exemptions for some agricultural products, instruments and equipment imported for scientific research and teaching, some goods imported for the disabled and services provided by welfare institutions such as nurseries, kindergartens and nursing facilities for the elderly.
To help the specific sector or business, the government can include new items in the area of tax deductions.
“With the introduction of the VAT law, 14 tax categories out of 18 in China have their own laws, covering most of the tax revenue and marking significant progress in implementing the principle of legal taxation,” Xinhua said.
The law was passed at the end of a session of China's top legislature, the Standing Committee of the National People's Congress, which began on Saturday.
Last month, China unveiled tax incentives for home and land transactions to support the crisis-hit property market. Residents are exempt from VAT when they sell their homes at least two years after purchase.
In September 2023, the finance ministry said it would extend a VAT refund policy aimed at encouraging domestic and foreign research institutions to buy Chinese-made equipment until the end of 2027.
China in 2019 reduced the VAT rate for manufacturers to 13% from 16% and to 9% from 10% for the transport and construction sectors.
With the world's second-largest economy slowing, VAT revenue in the first 11 months of this year fell 4.7% from the same period last year to 6.1 trillion yuan ($840 billion) as businesses suffered weak domestic demand. For the month of November, VAT revenues increased by 1.36%.
“The rise in VAT reflects improving economic vitality as sales and business activity recover. It may also indicate a recovery in industrial profits, further supporting economic momentum,” Tommy Xie, head of research, said in a note on Monday. Asian macro at OCBC. .
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