Basic Example
Company A pays $10,000 for Product A in April, with $1,700 in VAT input tax, and obtains a special VAT invoice. The tax-inclusive sales of Product A amounted to RMB 23,400.
Input tax = 1700 yuan
Output tax = 23400/(1+17%) × 17% = 3400 yuan
Tax payable = 3400-1700 = 1700
Value-added tax (VAT) is a kind of turnover tax that is levied on the value-added amount of the goods (including taxable labor services) produced in the process of turnover as the basis of tax calculation. In terms of the principle of tax calculation, VAT is a turnover tax levied on the new value added or the added value of commodities in multiple stages of commodity production, circulation and labor services. It is an out-of-the-money tax, that is, it is borne by the consumer, and it is levied only when there is value added, but not when there is no value added.
VAT is a tax on the value-added amount realized by units and individuals who sell goods or provide processing, repair and assembly services and import goods. VAT has become one of the most important taxes in China, with VAT revenue accounting for more than 60 percent of all tax revenue in China, making it the largest tax.
VAT is collected by the State Administration of Taxation (SAT), with 75% of the tax revenue going to the central government and 25% to local governments. VAT on imports is collected by the Customs Department, with all tax revenue going to the central government.
Expanded Information
Tax Rates
Effective July 1, 2017, the structure of VAT rates was simplified and the 13% VAT rate was abolished. Currently, the tax rates applicable to general taxpayers are 13%, 9% , 6% and 0%.
Applying 13%? Tax rate: the sale of goods or the provision of processing, repair and repair services and the import of goods. Provide tangible movable property leasing services.
Applicable 9% tax rate: provision of transportation services.
Agricultural products (including grain), tap water, heating gas, liquefied petroleum gas, natural gas, edible vegetable oil, cold air, hot water, gas, coal products for residential use, edible salt, agricultural machinery, feed, pesticides, agricultural films, fertilizers, biogas, dimethyl ether, books, newspapers, magazines, audio-visual products, electronic publications. 6% tax rate applies
Provision of modern service industry services (except for tangible movable property leasing services). Apply 0% tax rate
Special business such as exporting goods.On April 19, 2017, the State Council executive meeting decided to reduce the VAT rate from four grades to three grades of 17%, 11% and 6% from July 1, and to cancel the 13% rate. The first step will be taken to simplify and consolidate China's first major tax, the VAT rate.
Levy rate
The levy rate applies to small-scale taxpayers, which is 3 percent.
Baidu Encyclopedia - Value Added Tax