The draft law on value-added tax (VAT) was reviewed in group discussions during the 38th session of the Standing Committee of the 13th National People's Congress (NPC) on Dec 30, 2022 and met widespread approval.

The draft law on VAT, the largest tax category in China, will upgrade the current provisional regulations and relevant policies on VAT into a law while maintaining a stable tax system framework and keeping the tax level basically unchanged, according to group discussion participants.

They agreed that the draft law positively responds to the practical needs of market entities for cutting taxes and fees, and made clear provisions on taxpayers, tax base, tax rates, tax payable, favorable policies and the management of tax collection.

In the meantime, they also put forward suggestions for improving the draft law.

Zhu Mingchun, a member of the NPC Standing Committee, noted that some of the key elements of the draft law need further detail and specifications, such as the standards of VAT thresholds for taxpayers, the definition of small-scale taxpayers and the special conditions for calculating sales by difference.

The meeting also discussed the adjustment of VAT exemption items, which was stipulated in Article 22 of the draft law.

NPC Standing Committee member Lyu Wei suggested that match-making services, which have become a universal service despite limited credibility, be withdrawn from VAT exemption. Meanwhile, inclusive kindergartens, nurseries, nursing homes and welfare institutions for the people with disabilities should be applicable to VAT exemption, but low tax rates should be applied to such service institutions that levy high fees.

NPC Standing Committee member Tan Yaozong sounded a note of caution on whether to list "contraceptives and apparatus", which are sold as general products in most cases, since other tax-free goods in the draft law have a public welfare nature.

Zheng Gongcheng, also a member of the NPC Standing Committee, suggested that charitable goods and services donated by units and self-employed households should be included in the VAT exemption provision, because charitable donations do not generate profit but contributors pay production costs. Zheng said he believes that exemption of VAT on donated goods will serve as a substantial support for the development of charity in China.

Zheng's views were echoed by Gong Puguang. Article 22 of the draft law stipulates that imported materials and equipment provided by foreign governments and international organizations as free assistance can be exempted from VAT". Gong, also a member of the NPC Standing Committee, said that a statement on VAT exemption for free donations by domestic companies or individuals should also be included in Article 22 of the draft law.