Nov 02, 2011 06:42 PM

China Raises VAT and Business Tax Thresholds

(Beijing) – China's Ministry of Finance and the State Administration of Taxation raised minimum thresholds for China's value-added tax for businesses.

The threshold for the VAT on small enterprises based on monthly sales revenues will be raised between 5,000 and 20,000 yuan, up from the previous range of 2,000 to 5,000 yuan. The monthly business tax threshold was also raised to the same range as the VAT.


The adjustment will significantly cut taxes paid by private business owners according to Sun Gang, researcher at the Ministry of Finance Research Institute.

The reduction applies mostly to small- and medium-sized business owners, and will have little impact on the government's business tax revenues.

Sun also pointed out bureaucratic obstacles challenging the implementation of the new policy. In less developed areas, tax authorities are known to habitually inflate the earnings of private businesses to garner more tax revenue. Sun said, without addressing this issue, raising the taxation threshold could potentially add to the burdens of small business owners.

Some other analysts, on the other hand, suggested the thresholds are still too low. Zhou Tianyong, professor at the CPC Central Committee's Party School, said in his microblog the lower limit of the threshold range should be further increased to 10,000 or 15,000 yuan.

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