(Yicai) Dec. 26 -- China approved its first value-added tax law yesterday, and despite it being the country’s bulkiest piece of tax legislation, the new law will only marginally affect businesses, a tax specialist told Yicai.

The law, which will take effect on Jan. 1, 2026, adheres to the existing regulatory framework for VAT and, generally speaking, it will have little impact on enterprises and other business entities, said Wang Huayu, deputy director of the Fiscal Taxation Law Research Center at Shanghai Jiao Tong University. It retains the three tax rates of 6 percent, 9 percent, and 13 percent, Wang noted. 

But the legislation imposes constraints and clarifies administrative powers, Wang said. For example, the law directly specifies the transactions deemed taxable, whereas they were previously determined by the State Council, the country’s cabinet.

VAT is China's biggest source of tax revenue, bringing in CNY6.12 trillion (USD851.56 billion) in the first 11 months of the year, which accounted for about 38 percent of the government’s total income in the period, according to the finance ministry.

The VAT Law has six chapters and 38 articles, 10 more than the existing regulations. With its approval, 14 of the country's 18 tax categories have now been legislated for, covering the bulk of tax revenue.

The legislation lists nine areas that are exempt from VAT, including some agricultural production, medical services, education, and welfare services such as nurseries and care homes for the elderly, all of which are closely linked with people's livelihoods.

The law also stipulates that the State Council can formulate special preferential VAT policies to support micro and small businesses, promote key industries, encourage innovation and entrepreneurship, as well as support charitable donations.

VAT is wide-ranging and has a long collection chain, making it a challenge to manage and collect, said Shi Zhengwen, director of the Center for Fiscal and Tax Law at the China University of Political Science and Law.

The VAT Law includes many provisions on tax administration, aiming to improve governance capabilities, he said. It states that electronic invoices have the same legal standing as paper ones, for example, indicating that VAT e-invoicing will be widely adopted in the future, enhancing the efficiency of tax management, Shi added.

Editor: Kim Taylor