As the largest tax category in China, VAT contributed approximately 38 percent of the national tax revenue in 2023, according to official statistics.
The report did not specify the detailed provisions of the new law. However, the latest draft includes exemptions for various agricultural products, imported scientific research and teaching equipment, certain goods for individuals with disabilities, and services offered by welfare institutions such as nurseries, kindergartens, and elder care facilities.
To support specific sectors or businesses, the government may introduce additional items eligible for tax deductions.
Xinhua noted that with the implementation of the VAT Law, 14 out of 18 tax categories in China will now have their own legal framework, which covers a significant portion of tax revenue and represents a major advancement in the principle of statutory taxation.
The law was approved during a session of the National People's Congress Standing Committee, which commenced on Saturday.
In a related move, last month, China announced tax incentives for home and land transactions to bolster the struggling property market, allowing residents to sell their homes without incurring VAT if they have owned the property for at least two years.
Additionally, in September 2023, the finance ministry announced an extension of a VAT refund policy designed to encourage both domestic and foreign research institutions to purchase Chinese-manufactured equipment, which will now remain in effect until the end of 2027.
In 2019, China reduced the value-added tax (VAT) rate for manufacturers from 16 percent to 13 percent, and for the transportation and construction sectors, it decreased from 10 percent to 9 percent.
As the world's second-largest economy experiences a slowdown, VAT revenue for the first 11 months of this year fell by 4.7 percent compared to the same period last year, totaling 6.1 trillion yuan (approximately US$840 billion), largely due to weak domestic demand affecting businesses. However, in November, VAT revenue saw a modest increase of 1.36 percent.
Tommy Xie, head of Asia macro research at OCBC, noted in a report on Monday that "the increase in VAT indicates a revival in economic activity, as sales and business operations improve. This may also suggest a rebound in industrial profits, which could further bolster economic growth."