China expands VAT reform to two new sectors

China will continue to expand the scope of its pilot program to replace turnover tax with value-added tax (VAT) by including two new sectors under the reform, an official document revealed Wednesday.

The country will incorporate the railway transportation and postal service sectors into the ongoing VAT reform starting on Jan. 1, 2014, according to a statement released after an executive meeting of the State Council, or the country's Cabinet, presided over by Premier Li Keqiang.

VAT is tax levied on the difference between the cost of production and the price of a commodity on the market. It is favored partly because it can reduce double taxation.

Following regional experiments since the beginning of 2012, VAT reform was rolled out throughout the country on Aug. 1, reducing taxes on businesses by 94 billion yuan (about 15 billion U.S. dollars) in the first 10 months of this year.

The experiments in the past two years "have pushed forward development of the service sector, promoted economic restructuring and provided more jobs," the statement said.

At present, the reform only focuses on certain service sectors, such as transportation via roads, waterways, air and pipelines, as well as some modern service areas such as information technology, cultural innovation and consulting services.

After the expansion, the entire transportation industry will be covered by the VAT trials.

"This will help further alleviate the tax burden for companies involved, especially small and micro-sized businesses," the statement said.

The State Council urged local authorities to properly implement the reform plan to make the policy "bloom and bear fruit" in more areas.

Pushing forward VAT reform is among major tasks for improving China's taxation system, according to a landmark plan on deepening reforms released last month by the Communist Party of China.

The executive meeting also announced the improvement of basic schooling conditions for compulsory education in poverty-stricken areas, and approved amendment drafts of some laws and regulations.