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Policy Options on VAT for Business Tax in China's Banking Industry (No 159, 2015)


By Wang Gang, Research Institute of Finance of DRC

Research Report No 159, 2015 (Total 4844)


According to the Twelfth Five-Year Plan and work arrangement by the State Council on scaling up the pilot programs of VAT (value-added tax)for business tax, China's banking industry would have VAT reform completed by the end of this year. The current banking business taxation indeed has some drawbacks and needs reform for correction. However, due to its particularity, the banking industry faces a series of problems with VAT for business tax including the difficulties relating to defining the scope of taxation, determining the ways of taxation, calculating the added amount, deducting input tax, as well as high cost in taxation transformation and implementation. As a main channel for real economy financing, the VAT for business tax in the banking industry will affect many other sectors and produce great impacts, and therefore the reform requires overall planning, all-round consideration, and comprehensive balance. The paper summarizes the basic principles of VAT for business tax in the banking industry and points out that the simple tax calculation method should not be applied indiscriminately but should instead devise tax calculation methods based on different kinds of banking services. The paper also provides relevant policy options for stakeholders on how to make related preparations for the transformation of VAT for business tax.