**BEIJING, Dec 25 -** China has officially sanctioned a value-added tax (VAT) law, which will come into effect on January 1, 2026, as reported by the state media outlet Xinhua. This new legal framework consolidates prior regulations, including various exemptions from the tax. VAT is the predominant tax category within China, contributing approximately 38% of the national tax revenue in 2023, according to official statistics.
While specific details of the new law were not revealed, earlier drafts included exemptions for certain agricultural products, as well as imported instruments and equipment utilized for scientific research and education. Additionally, imported goods intended for persons with disabilities and services from welfare institutions, such as nurseries, kindergartens, and homes for the elderly, were also mentioned as potential exemptions.
To support specific sectors or businesses, the government may expand the list of items eligible for tax deductions. Xinhua noted that with the introduction of the VAT law, 14 out of 18 tax categories in China now possess individual legislative frameworks, which significantly advances the nation’s shift towards statutory taxation practices. The law was ratified during a session of China’s National People’s Congress Standing Committee, which commenced on Saturday.
In related tax policy developments, last month, China announced incentives for home and land transactions, aimed at revitalizing the struggling property market. Under these new measures, residents selling their homes at least two years after purchase will be exempt from VAT.
Furthermore, in September 2023, the finance ministry declared an extension of a VAT refund policy designed to encourage both domestic and foreign research institutions to invest in Chinese-made equipment, extending its validity until the end of 2027.
In 2019, the government reduced the VAT rate for manufacturers from 16% to 13%, and for the transportation and construction sectors, from 10% to 9%. Amidst a slowdown in the world’s second-largest economy, VAT revenue saw a decline of 4.7% over the first 11 months of this year, amounting to 6.1 trillion yuan (approximately $840 billion), as businesses faced challenges from weak domestic demand.
Nonetheless, VAT revenue experienced a modest increase of 1.36% in November. Analyst Tommy Xie, head of Asia macro research at OCBC, remarked that the resurgence in VAT collections indicates a rebound in economic activity, suggesting a recovery in both sales and business performance, which may further bolster industrial profits and overall economic momentum. *Exchange rate: $1 = 7.2986 Chinese yuan renminbi.*
