China's VAT reform restructures economy, encourages entrepreneurship

BEIJING - China's value-added tax reform, a key part of supply-side economic reform, has given impetus to economic growth and boosted entrepreneurship.

The VAT reform, which replaced all business taxes with a value-added tax, was first piloted in Shanghai in 2012. It was expanded nationwide from May 1, 2016, with the construction, real estate, financial and consumer services sectors included in the VAT regime.

Tangible goods have been subject to VAT for some time, but the levy on services was imposed on the value of a firm's sales. Such a crude system resulted in a tax on tax. VAT avoids this, as it is applied to the value added at each link in the production chain.