VAT law a welcome move, but still room for further reform

The recent adoption of a law on value-added tax by China's top legislature marks major progress in the country's tax system reform.

China began to pilot VAT collection in selected regions and industries from the late 1970s, gradually expanding the scope of its collection before levying it nationwide after May 2016. Despite important achievements brought about by amending the value-added tax law, the country still needs to improve the VAT system to promote the establishment of a tax system that facilitates high-quality development, social equity and market unity.

To give better play to the advantages of the VAT system, the scope of general taxpayers should be gradually expanded, the input tax credit system should be improved, and double taxation and tax evasion should be reduced. As for small, low-profit enterprises, and individual industrial and commercial households that need preferential tax treatment, the amount of tax exemption can be set and the rate of tax levy can be reduced.