China’s national legislature approved a value-added tax (VAT) law on Wednesday. The new law, set to take effect on January 1, 2026, consolidates previous regulations, including those exempting certain items from the tax.
VAT, the country’s largest tax category, accounted for approximately 39 percent of China’s total tax revenue in 2023, according to official data. In the first 11 months of 2024, VAT revenue reached around 6.12 trillion yuan ($838 billion), making up about 37.8 percent of the nation’s tax revenue.
The new law consists of six chapters and 38 articles. Key provisions include the scope of VAT taxation, tax rates, and the determination of tax payable. It introduces a zero tax rate for certain exports and establishes guidelines for tax incentives. Additionally, the law sets a threshold for small-scale taxpayers, offering them some relief under the new system.
Certain sectors will also benefit from the VAT exemptions. Medical services provided by healthcare institutions, imported instruments and equipment for scientific research, items directly imported by organizations for disabled individuals, and services provided by disabled persons will all be exempted from VAT.
With the enactment of the VAT law, China has now legislated 14 out of its 18 current tax categories, covering the bulk of its tax revenue.
Li Xuhong, vice president of the Beijing National Accounting Institute, called the VAT law a milestone in China’s tax reform. “It marks a major achievement in modernizing the system, from the shift from business tax to VAT to simplifying rates and improving tax refunds,” Li said, adding that it will enhance the certainty of the tax framework.
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