China Update 2008

China's Experimental VAT Reforms For 2009 And Revisions To Export Tax Rebates

Key Points:

• VAT reforms to see tax reductions of more than US$17 billion
• Increased export tax rebates for some labor intensive industries

Given the global credit crunch and concerns regarding demand for China's exports, the government recently announced an RMB4 trillion (US$585 billion) domestic infrastructure spending package designed to stabilize China's economic growth rate. In parallel with this development, and in response to a global downturn in demand, the State Administration of Taxation has taken bold new steps to boost domestic demand through a series of experimental VAT reforms, or reduced taxation, scheduled to begin in early 2009. These VAT reforms are expected to result in tax reductions of more than US$17 billion. The additional liquidity available to companies as a result is expected to generate further investment in research and development and an increase in