The State Administration of Taxation (SAT) and the Ministry of Finance (MOF) jointly released the Circular on Launching the Pilot Program Relating to the Conversion of Value Added Tax to Business Tax in Transportation and Modern Services Industries in 8 Provinces and Cities (the “VAT Circular”) on July 31, 2012, which took effect the same day. 

According to the VAT Circular, the pilot program which started in Shanghai will expand to another 8 provinces and cities. Specifically, the program will expand to Beijing, Tianjin, Jiangsu Province, Anhui Province, Zhejiang Province (including Ningbo City), Fujian Province (including Xiamen City), Hubei Province, and Guangdong Province (including Shenzhen City) starting on August 1, 2012. 

After a period of preparation, the above 8 provinces and cities shall start the pilot scheme according to the schedule as below: 

Following the implementation of the VAT Circular, the SAT further released the Announcement on Certain Issues relating to Recognition of VAT General taxpayer in the Expanded Pilot Area for Conversion of Value Added Tax to Business Tax in Transportation and Modern Services Industries (the “VAT Announcement”) on August 10, 2012, which also took effect on the same day. 

The VAT Announcement mainly covers the following issues: 

I. Taxpayers in the pilot area with annual sales revenue derived from taxable services adding up to more than RMB 5 million before the commencement of the VAT pilot program shall apply for the recognition of the VAT general taxpayer with the tax authorities. 

Annual sales revenue derived from taxable services = total sales revenue from taxable services for no more than 12 months/(1+3%). 

The starting and closing date for the 12-month period shall be determined by the tax authorities on the provincial level. 

II. Taxpayers in the pilot area with annual sales revenue derived from taxable services adding up to less than RMB 5 million before the commencement of the VAT pilot program may apply for the recognition of the VAT general taxpayer with the tax authorities in charge. 

III. Taxpayers in the pilot area who obtained the general taxpayer status before the commencement of the VAT pilot program do not need to reapply for the recognition. 

IV. Upon recognition as a VAT general taxpayer, a six-month guidance period may be imposed by the tax authorities in charge of the taxpayer in the event of tax evasion, export tax refund fraud or issuance of fake VAT invoices by such VAT general taxpayers. 

V. For the actual effective date for each pilot province and cities, refer to the VAT Circular. 

• Circular on Launching the Pilot Program Relating to the Conversion of Value Added Tax to Business Tax in Transportation and Modern Services Industries in 8 Provinces and Cities 
• Issuing Authority: State Administration of Taxation and the Ministry of Finance 
• Date of Issuance: July 31, 2012 / Effective date: July 31, 2012 
• Announcement on Certain Issues relating to Recognition of VAT General Taxpayer in the Expanded Pilot Area for Conversion of Value Added Tax to Business Tax in Transportation and Modern Services Industries 
• Issuing Authority: Ministry of Finance 
• Date of Issuance: August 10, 2012 / Effective date: August 10, 2012