|Tax Reform Aid Subject to Corporate Tax|
Financial aid that companies receive as a result of the country's reforms to its value-added tax will be subject to corporate income tax, Finance Ministry confirmed.
At the beginning of this year in Shanghai, a test reform replaced what is known as a turnover tax with a value-added tax on selected services. The government said it aims to gradually replace turnover taxes with value-added taxes in all sectors of the country's economy.
A turnover tax is a tax on a business' gross revenue and a value-added tax is a tax levied on the difference between a commodity's price before the application of other taxes and the cost of producing it. The policy change is expected to reduce companies' tax burdens, especially those falling on the service sector.
In Shanghai, though, the reform has actually caused some companies to pay higher taxes. To provide financial aid to businesses that find themselves in that situation, the Finance Ministry has established a special fund. The Finance Ministry issued a document specifying what audit methods should be followed by those involved in the reform. The document had raised questions about whether financial aid going to corporations will be placed in the category of taxable income. Responding to a media inquiry, officials confirmed that the special financial aid should be considered taxable income.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on August 13, 2012