Indirect Taxation, Value Added Tax, Cross-Border Services, Destination-Based Taxation
In early November 2008, China's State Council approved a major overhaul of the country's VAT: starting in 2009, registered VAT payers are allowed to claim input credit for VAT paid on purchases of equipment and other non-real-property fixed assets. The change marks a decisive abandonment of China's previous esoteric "production-type" VAT (which disallowed input tax credit for fixed asset purchases) in favour of the conventional consumption-type VAT, and a giant step in the rationalization of the country's tax structure. It also promises to accelerate the pace of VAT reform, the next major stage of which is widely regarded as expanding the VAT into services and other sectors currently subject to the business tax (BT). The BT, which generally applies to services and the transfer of real and intangible properties, covers a tax base that is normally covered by the VAT in other countries, but is a cascading tax imposed at lower rates than the regular VAT rates. Its eventual unification with the VAT had been anticipated ever since the two taxes were given their current shape during the 1994 tax reform. A major task facing tax policymakers, scholars, and practitioners in China today, therefore, is how to introduce VAT norms and rule design into the operation of the BT.
Wei Cui, "Indirect Taxation of Cross-Border Services in China: (Partial) Switch to Destination-Based Taxation" in Michael Lang, Peter Melz & Eleonor Kristoffersson, eds, Value Added Tax and Direct Taxation: Similarities and Differences (IBFD, 2009).