VAT Law-Risks in application

Abstract

China’s Value-Added Tax Law of the People’s Republic of China (VAT Law) officially came into effect on January 1, 2026, replacing the Interim Value-Added Tax Regulations of the People’s Republic of China (Interim Regulations) that have been in effect for 31 years. The VAT Law aims to promote high-quality development, regulate the collection and payment of VAT, and protect the legitimate rights and interests of taxpayers. Its goal is to improve efficiency and neutrality of tax administration, benefiting both taxpayers and tax authorities. The enactment of the VAT Law is considered a measure to formalize tax collection and a significant step forward in China’s tax legislation process. This paper introduces some key changes in the VAT Law and discusses the implications of these changes for taxpayers, while pointing out potential pitfalls taxpayers should be aware of. Furthermore, this paper presents a real-world case to illustrate the potentially significant economic losses taxpayers may face if they violate the VAT Law.