China further reduced its standard VAT rates to provide a domestic boost to its manufacturers struggling under the US-China trade war. Effective from April 1, 2019, the standard VAT rates of 16% and 10% were lowered to 13% and 9%, respectively.

In addition to the VAT rate reduction, Chinese legislators have adopted other preferential regimes for specific sectors that are considered to be hardest hit by the trade war. These measures include a 10% super input VAT credit for manufacturers and providers of lifestyle-related services designed to lessen the overall tax burden of these taxpayers. Further, to relieve cash flow pressures faced by taxpayers, certain input VAT balances that have been carried forward from previous periods will be refunded.

DLA Piper Comment: The tax cut will largely benefit struggling Chinese manufacturers as well as consumers. This is the second tax cut in the past 12 months, with the first having taken place on May 1, 2018 where the VAT rates were reduced from 17% and 11% to 16% and 10%, respectively.