In the news: China proposes to fix VAT rebates, the Shenzhen-Hong Kong Stock Connect launches and the PBOC tightens offshore renminbi loan controls

More VAT changes to come

China will give fixed rebates on value-added taxes (VATs) to local governments beginning this year, according to the State Council, in a bid to beef up their fiscal strength while tightening rules to hold them responsible for debt obligations. The central government has previously handed 30% of annual increases in VAT revenue back to local authorities, which critics say has failed to narrow regional income gaps as advanced regions usually had faster VAT growth and enjoyed larger rebates. It comes as China completes its overhaul of its business tax regime this year to reduce corporate burdens and boost the service industry. But the move had led to a decline in tax revenue for local governments. The vice minister of finance said that China will  simplify VAT rates, adding that the current tax system's many tiers cause confusion in policy implementation and impede fair competition. Current rates have four levels that range from 6% to 17%. While the final rollout of the VAT reform this year to all industries—bringing the construction, real estate, consumer and financial sectors into the scheme—was a long-awaited development, the gaps and difficulties in implementation show that the changes aren't over just yet.

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