On November 19, 2017, Premier Li Keqiang signed a State Council decree promulgating the "Decision of the State Council on Abolishing the Provisional Regulations of the People's Republic of China on Business Tax and Amending the Provisional Regulations of the People's Republic of China on Value-Added Tax" (hereinafter referred to as the "Decision"), which took effect from the date of its promulgation. Recently, officials from the Legal Affairs Office of the State Council, the Ministry of Finance, and the State Administration of Taxation answered reporters' questions regarding issues related to the "Decision."

　　Q: What are the backgrounds behind the repeal of the “Interim Regulations on Business Tax of the People’s Republic of China” and the amendment of the “Interim Regulations on Value-Added Tax of the People’s Republic of China”?

　　Answer: The “Interim Regulations of the People’s Republic of China on Business Tax” (hereinafter referred to as the “Interim Business Tax Regulations”) and the “Interim Regulations of the People’s Republic of China on Value-Added Tax” (hereinafter referred to as the “Interim VAT Regulations”) were promulgated by the State Council in 1993. In accordance with the arrangements made by the Party Central Committee and the State Council, a pilot program to replace business tax with value-added tax (hereinafter referred to as the “Business-to-VAT Reform”) was launched in 2012 and fully rolled out nationwide on May 1, 2016. The Business-to-VAT Reform is a major initiative to advance supply-side structural reform, represents the largest tax reduction measure implemented in China in recent years, and is also a key component of the current government’s efforts to deepen fiscal and taxation system reform. It has played an important role in promoting the establishment of a unified and simplified tax system, eliminating double taxation, effectively reducing the burden on enterprises and the public, extending industrial chains, broadening the tax base, implementing the innovation-driven development strategy, fostering the growth of new economic drivers and industrial upgrading, and boosting employment—achieving multiple benefits at once. This reform has not only provided strong support for current economic growth but has also injected robust momentum for sustained future development. After the full-scale rollout of the Business-to-VAT Reform, the service sector previously subject to business tax has now been uniformly taxed under the value-added tax system, effectively abolishing the business tax that had been in place for over 60 years. As a result, the Interim Business Tax Regulations have essentially ceased to be enforced. To legally confirm and consolidate the achievements of the Business-to-VAT Reform pilot program and further stabilize expectations across all sectors, the State Council has decided to abolish the Interim Business Tax Regulations and make corresponding amendments to the Interim VAT Regulations.

　　Q: What are the key specific amendments made to the Provisional Regulations on Value-Added Tax?

　　Answer: There are mainly four aspects:

　　First, taxpayers subject to the business tax-to-value-added tax (VAT) reform—namely, entities and individuals that sell services, intangible assets, or real estate—are explicitly defined as VAT taxpayers. Following this amendment, the scope of VAT taxpayers now includes entities and individuals that sell goods or provide processing, repair, and maintenance services within the territory of China, as well as those that sell services, intangible assets, or real estate, and those that import goods. At the same time, relevant provisions in the Provisional Regulations on Value-Added Tax concerning sales amounts, taxable amounts, outbound taxes, inbound taxes, and small-scale taxpayers—those pertaining to the scope of taxation—have been adjusted accordingly.

　　Second, the tax rates applicable to the sale of services, intangible assets, and real estate will be increased accordingly within the tax rates stipulated in the Provisional Regulations on Value-Added Tax. Additionally, in line with the already implemented reform to simplify VAT rates, the tax rate for the sale or import of goods such as grain, edible vegetable oil, tap water, books, and animal feed will be adjusted from 13% to 11%.

　　Third, corresponding adjustments have been made to the input tax amounts that are allowed to be deducted from the output tax amounts, as well as those input tax amounts that are not eligible for deduction.

　　Fourth, to ensure that the Provisional Regulations on Value-Added Tax are aligned with the relevant provisions of the business tax-to-VAT reform and future reform measures, it is stipulated that, with regard to matters concerning the payment of value-added tax by taxpayers, if the State Council or the financial and tax authorities under the State Council, with the approval of the State Council, have issued separate provisions, such provisions shall prevail.

　　Q: After the Decision takes effect, will the existing transitional policies related to the business tax-to-value-added tax (VAT) reform continue to be implemented?

　　Answer: The purpose of this amendment to the Provisional Regulations on Value-Added Tax is to codify the key outcomes of the pilot program for replacing business tax with value-added tax; no new policy measures have been introduced. After the Decision takes effect, the existing transitional policies related to the business-to-value-added-tax reform will continue to be implemented.

　　Q: After the amendment of the Provisional Regulations on Value-Added Tax, will a Value-Added Tax Law still need to be enacted?

　　Answer: In accordance with the requirement of implementing the principle of tax statutoryness, all existing provisional regulations concerning taxation will gradually be elevated to the status of laws. During the implementation of the revised Provisional Regulations on Value-Added Tax, relevant authorities will further refine various policy measures, summarize practical experience, and, based on the progress of reform, actively study and draft a Value-Added Tax Law.