China to pilot replacing turnover tax with VAT in Shanghai

China's Ministry of Finance announced Thursday that the country will start replacing its turnover tax with a value-added tax (VAT) in the transport sector and some service sectors in Shanghai starting from Jan. 1. The announcement came after the State Council, or the Cabinet, approved the pilot program on Oct. 26 in a bid to push forward structural taxation reduction and boost growth in the country's services industries. Turnover tax refers to a tax on the gross revenue of a business, while a VAT refers to a tax levied on the difference between a commodity's price before taxes and its cost of production. An 11-percent VAT rate will apply to the transport sector and a 6-percent rate to sectors related to research and development, technological services, culture, logistics and consultation. The new VAT rates are additions to the current VAT rates, which also include two ranks, 17 percent and 13 percent, respectively, according to a statement posted on the ministry's website. The statement said the trial program will help taxation authorities accumulate experience before the tax replacement scheme is applied nationwide. In a separate statement Thursday, the ministry announced the country will scrap the collection of up to 22 items of administrative fees from small and micro-sized companies during the Jan. 1, 2012 - Dec. 31, 2014 period. Such fees include charges of companies' registry and tax invoice purchase. The statement said the new regulation aims to reduce the burden of small and micro-sized firms who already face tight supply of credit from the nation's banks who favor large state-owned companies. The State Council pledged last month stronger financial and fiscal support to small- and micro-sized businesses. The fiscal support measures include raising the tax threshold for corporate value-added taxes and business taxes and extending a policy to halve business income taxes by 2015.