vat-reform-in-china—impact-on-construction-and-real-estate

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1、VATreforminChina:impactonconstructionandrealestateLachlanWolfersandCurtisNgofKPMGexplainwhatimpacttheChineseVATpilotwillhaveontheconstructionandrealestatesectorsonceitisextendedtothem.WiththefirststageoftheVATpilotprogrammeforthemodernservicesandtransportationsectorsnowimplementedinmany

2、ofthemajorcommercialcentresacrossChina,attentionisnowturningtothoseindustrieswhichareyettotransitionfrombusinesstax(BT)toVAT.Therearefewindustrieswhichevokeaswidespreadanalysisandscrutinyoftaxationpoliciesastheconstructionandrealestatesector;especiallyinChinawherethepropertymarkethasbee

3、nonarapidgrowthtrajectoryinrecentyears.China'snewleadershavepubliclystatedtheirdesiretoexpandtheVATreformstonewindustriesin2013;itiswidelyexpectedthattheconstructionandrealestatesectorwillbeamongthenextsectorstotransition,possiblyassoonasthesecondhalfof2013.Anannouncementfromthegovernme

4、ntiseagerlyanticipated.Thesignificanceofthissectortothegovernmentisself-evident,withstatisticspublishedinTheChinaTaxYearbook2011showingthatBTrevenuecollectedfromconstructionandrealestatecombinedrepresentsapproximately51%oftotalBTrevenueinChina.Thisarticletakesanadvancelookatmanyoftheiss

5、uesthattheindustry,taxauthoritiesandadviserswillneedtoconsiderinrelationtotheconversionoftheconstructionandrealestatesectortoVATinChina,basedontheexistingBTsystemandinternationalexperience.MakingVATfitInmanyothercountrieswithaVAT,thetreatmentofconstructionandrealestatetransactionspresen

6、tsdifficultchallenges.Thevaluesoftransactionsinthissectorareoftenveryhigh;andthereisusuallyamultiplicityofdifferenttaxesalreadyapplicabletosuchtransactions,sotheintroductionofVATneedstofitintotheexistingtaxregime.Theeffectoftaxationpoliciesonpropertyvaluesevokesenormousinterestamongstth

7、egeneralpopulation,andwhethertotaxpassiveincreasesinlandvaluesaspartofthevalueaddedisoftencontentious.ThepositioninChinaisnodifferent.Indeed,therehasbeensomedebateinrecentyearsabouttheneedtoembarkonabroaderreformofproperty-relatedtaxes,giventhebreadthofdifferenttaxeswhichapplyt