China: Draft VAT law

As part of the legislative process, the draft is open for comments until 28 January 2023.

As part of the legislative process, the draft is open for comments until 28 January 2023.

The first draft of the value added tax (VAT) law was released by the National People’s Congress (NPC) on 27 December 2022. The aims of the VAT law are to:

  • Enhance the adoption of OECD International VAT/ goods and services tax (GST) guidelines into the draft law, in particular by adopting the place of consumption approach in determining whether a transaction has a place of supply within China, and by allowing refunds of excess input VAT credits
  • Upgrade the status of the previously bifurcated VAT pilot program rules (applicable to services) and regulations (applicable to goods) to become a single substantive VAT law

Importantly, the draft VAT law does contain some important changes as compared with the current VAT rules in areas of simplified taxation, deemed sales, non-creditable input taxes and mixed sales.

The draft comprises of six chapters (with a total of thirty-seven articles), namely the general provisions, tax rates, taxable amounts, tax concessions, collection and administration, and supplementary notes. Compared with the existing provisional regulations and other relevant regulations, there are some noteworthy changes in the areas of taxable acts, tax jurisdiction, deemed sales, non-taxable items, simplified taxation, withholding agents, input taxes, non-creditable input taxes, mixed sales, input credit carry-forward and refund, and consolidated filings. These changes will have a substantial implication on taxpayers when the draft is officially enacted.

Some of the key changes in the draft relate to the following:

  • Scope of taxable activities
  • Place of supply
  • Deemed taxable transactions
  • Non-taxable items
  • Application of the levy rate under simplified taxation method
  • Withholding agents
  • Definition of input tax
  • Non-creditable input taxes
  • Mixed sales
  • Excess input VAT credits
  • Tax periods
  • VAT consolidation

As part of the legislative process, the draft is open for comments until 28 January 2023. Based on discussions with the relevant government officials, tax professionals understand the enacting date would depend on whether the draft would be passed by the NPC over the second (or third) reading and the earliest possible timing could be the end of June 2023 (especially if a third reading is not required).

For more information, contact a KPMG tax professional:

David Ling | +1 609 874 4381 |


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