China expands VAT reform to 2 new sectors

BEIJING - China will continue to expand the scope of its pilot program to replace turnover tax with value-added tax (VAT) by including two new sectors under the reform, an official document revealed Wednesday.

The country will incorporate the railway transportation and postal service sectors into the ongoing VAT reform starting on January 1, 2014, according to a statement released after an executive meeting of the State Council, or the country's Cabinet, presided over by Premier Li Keqiang.

VAT is tax levied on the difference between the cost of production and the price of a commodity on the market. It is favored partly because it can reduce double taxation.

Following regional experiments since the beginning of 2012, VAT reform was rolled out throughout the country on August 1, reducing taxes on businesses by 94 billion yuan (about 15 billion U.S. dollars) in the first 10 months of this year.

At present, the reform only focuses on certain service sectors, such as transportation via roads, waterways, air and pipelines, as well as some modern service areas such as information technology, cultural innovation and consulting services.