On 13 July 2021, the State Taxation Bureau issued the Notice on the Consolidation of the Declaration Forms for Value-added Tax, Consumption tax, Urban Construction, and Maintenance Tax and Educational Surcharges (“Notice No. 20”) effective from 1 August 2021.
The consolidation of the declaration forms falls in the wider reforms to streamline tax collection and administration – specifically the implementation of the Opinions on Further Expanding the Tax Reforms in Tax Collection Administration (issued by the General Office of the CPC Central Committee and the General Office of the State Council.
Notice No. 20 brings significant changes to the declaration forms and declared information for both general VAT taxpayers and small-scale VAT taxpayers. In the below, we provide a practical insight into the reforms and the impacts on business in China.
Simplification of declaration forms
In China, Urban Construction and Maintenance Tax and Education Surcharges (“Surtaxes”) are imposed with VAT and consumption taxes. Taxpayers are required to declare Surtaxes when declaring VAT and consumption taxes to the tax bureau.
VAT is levied on sales and importation of goods in or to China (including the sale of intangible properties and immovable properties), provisions of services in or out of China. Applicable tax rates depend on whether the taxpayer is registered as general VAT taxpayer or small-scale taxpayers and the taxable item.
Consumption tax is levied on manufacturers and importers of specific consumer goods including tobacco, alcohol, high-end cosmetics, jewellery, fireworks, gasoline and diesel, and certain petroleum products, motorcycles, automobiles, golf equipment, yacht, luxury watches, and so forth. The payable tax is calculated on the sales amount and/or the sales volume depending on the tax item.
Previously, the declaration procedure involved separate declaration forms for each tax levied and existing information of taxpayer was required each time. In Notice No. 20, the procedure is simplified to one declaration system which consolidates the VAT and Surtaxes and Consumption and Surtaxes through one form, one voucher, and one payment.
Furthermore, data from various government departments shall be shared with tax bureaus to ensure preexisting data of the taxpayer is automatically completed – thus relieving taxpayers from continuously completing existing information several times for different forms.
From 1 August 2021, the declaration system for VAT and consumption shall automatically request taxpayers to complete the declaration for related Surtaxes by completing supplementary information. Once the form is completed, the payable tax amount for VAT, consumption tax, and Surtaxes shall be generated for the current tax period.
As a result, from 1 August 2021 onwards, the previous Declaration of Urban Maintenance and Construction Tax, Surcharge for Education, and Local Education Surcharge will be invalid. In place, the following forms shall be utilised:
- VAT and Surtax Declaration Form (for general taxpayers)
- VAT and Surtax Declaration Form (for small-scale taxpayers)
- Advance Payment Form of VAT and Surtaxes and the materials attached thereto (for general taxpayers)
- Advance Payment Form of VAT and Surtaxes and the materials attached thereto (for small-scale taxpayers)
- Consumption Tax and Surtax Declaration Form
Companies should ensure preexisting information such as company name, address, and contact are correct and updated. Any outdated information may not affect the tax declaration, but also, outdated registered information could result in administrative penalties.
Equally, with the declaration form changes, accounting personnel should be familiarised with the new declaration forms in preparation, and relevant accounting policies should be amended accordingly to Notice No. 20.
VAT and Surtax Declaration Form (for general taxpayers)
Further declaration for Input VAT transferred as abnormal vouchers
For general VAT taxpayers, the new VAT and Surtax Declaration Form requires input VAT transferred as abnormal vouchers to be declared for the current period.
Generally, general VAT taxpayers can input VAT to offset output VAT by submitting special VAT invoices for deduction to the tax authorities. However, the special VAT invoices may not adhere to the provisions for the deduction of input VAT. In such a case, the tax authorities shall notify taxpayers that the submitted special VAT invoices are transferred as abnormal vouchers and the special VAT invoice cannot offset the output VAT.
In the new VAT and Surtax Declaration Form, any special VAT invoices declared for deduction and transferred as abnormal vouchers shall be declared in column 23a of VAT and Surtax Declaration Form Supplementary Information (II).
Special provisions for Grade A taxpayers
For general VAT taxpayers with Grade, A tax credit rating, the special VAT invoices transferred as abnormal vouchers can be verified with the relevant tax authorities, within 10 working days upon the receipt of the notification. Therefore, the special VAT invoices transferred as abnormal vouchers are not required to be declared in the VAT and Surtax Declaration Form until the verification result is issued. Thus, the amount of the special VAT invoice transferred as abnormal vouchers shall not affect the payable tax calculations until the verification results are issued.
Where the verification results confirm the special VAT invoice transferred as an abnormal voucher can be utillised for VAT deductions, the taxpayer shall reconfirm the deduction and declare the amount as a negative in column 23a of VAT and Surtax Declaration Form Supplementary Information (II).
For abnormal vouchers transferred back to special VAT invoices in the tax period of July 2021 and subsequently after, the taxpayer shall complete the deduction and markings of the special VAT invoice through the integrated VAT system. Afterward, the taxpayer shall declare the amount as a negative in column 23a of VAT and Surtax Declaration Form Supplementary Information (II).
For abnormal vouchers transferred back to special VAT invoices in the tax period before July 2021, the taxpayer shall directly declare the amount as a negative in column 23a of VAT and Surtax Declaration Form Supplementary Information (II).
Accounting personnel should be familiarised with the declaration for special VAT invoices transferred as abnormal vouchers. Specifically for taxpayers with a grade A tax credit rating, the verification of the special invoice transferred as abnormal vouchers shall be applied within the provision period, otherwise the special VAT invoices shall be treated as abnormal vouchers and cannot be utilised to offset the output tax.
VAT and Surtax Declaration Form (for small-scale taxpayers)
Amendments to column titles
For small-scale taxpayers, the new VAT and Surtax Declaration Form adjusts the column titles related to sales amount of issued special VAT invoices and sales amount of ordinary VAT invoices. Specifically, the following amendments are made:
- Previous columns 2 and 5 (formally ‘Sales amount of special VAT invoices issued on behalf of taxation authorities without tax”) is amended to “Sales amount of special VAT invoices without tax”
- Previous column 3,6, 8 and 12 (“Sales amount of ordinary invoices issued by taxation tool without tax”) are amended to “Sales amount of other VAT invoices without tax”.
The specific requirements to complete each of the columns remain unchanged.
Automation of the Consumption and Surtax tax declaration form
For the declaration of the Consumption Tax and Surtax, the form is simplified from the previous 8 main tables into one main table. By utilising the taxable consumer goods registered by the taxpayer, the tax declaration system shall automatically generate the “Names of Taxable Consumer Goods” and the “Applicable Tax Rate” in the main form, as well as corresponding supplementary tables to be completed. The previous 22 supplementary tables are consolidated into 4 general supplementary tables, 1 specific supplementary table for refined petroleum consumption tax, and 2 specific supplementary tables for cigarette consumption. Therefore, for taxpayers who do fall in the refined petroleum or cigarette categories, the supplementary tables related to refined petroleum or cigarette consumption shall not be displayed in the system.
In practice, such automation should reduce human errors in the completion of the declaration form and optimise the procedure. However, consumption taxpayers should ensure the registered consumer goods are updated so that there are no errors in the automated declaration form.
Notice No. 20 applies to both taxpayers who declare and pay VAT, consumption tax, and Surtax on a monthly or quarterly basis. Equally, the changes apply to the tax period of July 2021 and subsequently after. As a result, companies should ensure adequate preparation and implementation for a smooth transition and minimum disruption to the tax declaration.
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 In accordance with the provisions of item 1 of Article 3 of the Notice of State Administration of Taxation on the Management of Abnormal VAT Deduction Certificates.