Managing VAT effectively in time of rapid change - Ernst & Young - China

Managing VAT effectively in time of rapid change

There is a common misperception that value-added tax (VAT) in China is a neutral “pass through” tax that does not directly affect a company’s financial position. China collects a significant portion of its overall tax revenue from VAT and that means companies are large net payers of VAT instead of neutral collectors / remitters. The VAT costs borne by businesses can be considerable but based on our experience are “hidden” in the accounting figures (e.g., there is no one single account or line in the P&L that directly shows “VAT costs”) and rarely completely understood by companies.

China’s government has been considering undertaking a comprehensive VAT reform for the last few years. VAT and business tax (BT) currently account for over 50% of the China government’s tax revenue collection and adjusting such an important system needs to be carefully studied and monitored. As a result, the Shanghai VAT Pilot has been introduced since 1 January 2012 to test the outcomes of a revised VAT regime. It has been reported that more VAT pilot programs will be launched in the near future to other cities and possibly including additional “in-scope” services.

The rapid regulatory changes to China’s VAT regime, coupled with the lack of proactive or strategic management of VAT operations by companies, could lead to significant VAT costs and missed opportunities. New regulations are also creating chances for companies to streamline VAT operations and take advantage of special rules to recover lost VAT. However, this is not easy and due to numerous accounting, invoicing and reporting requirements, China’s VAT system could be considered one of the most complex systems in the world.

Based on our experience, many companies, including the “old” VAT taxpayers and the “new” VAT Pilot taxpayers, are surprised at the total value of VAT their organizations are managing and the extent of VAT costs and inefficiencies being incurred. The material size of the VAT pool, essentially cash, running through the organization and quantum of direct and indirect VAT costs being incurred warrant dedicated efforts to manage VAT cost efficiently.

We invite you to join Ernst & Young’s team of Indirect Tax professionals to learn more about recent and upcoming VAT regulatory developments; VAT costs, risks and opportunities; as well as how to strengthen the strategic management of your VAT.

Who should attend

• CFOs
• Tax directors
• Financial controllers
• Accounting staff
• Purchasing directors
• Legal professionals
• Indirect tax professionals
• Those interested in China’s VAT system