VAT reform expansion to be launched first in Beijing

Beijing may take the lead in the expansion of China's value-added tax pilot program by launching its VAT reform on Sept 1, a person close to the policymaking process said on Thursday.

The State Council on Wednesday approved a plan to extend a pilot program to replace the business tax with a VAT. The program, currently only in Shanghai, will extend to eight other provincial-level regions - Beijing, Tianjin, Jiangsu, Zhejiang, Anhui, Fujian, Hubei and Guangdong - and the cities of Xiamen and Shenzhen.

The 10-region plan will be open on Aug 1 and conclude at the end of this year.

In addition to Beijing, regions such as Tianjin, Anhui and Jiangsu are better prepared to launch their local VAT reform programs this year, said Kenneth Leung, a partner of Tax & Business Advisory Services at Ernst & Young.

The expansion of the pilot program to the 10 regions suggests that authorities expect the VAT reform to be ready nationwide by 2015, Leung said. But some regions may not be ready by the end of this year, so a rush to launch the program could lead to chaos, he said.

China may also select certain industries to roll out VAT reform nationwide in 2013, Leung said. Such industries include transportation, building installation, and post and telecommunications, he said.