Ordinary tax-payers who sales goods or provide taxable services (referred to selling goods or taxable services), the taxable amount from current output tax deducts Input tax balance thereafter. Formula for computing the tax payable:
Tax payable = Output tax - Input tax
In the "Provisional Regulations of the People's Republic of China on Value-Added Tax”, the State Administration of Taxation Order No. 22, Article 10 states:
The following items of input tax shall be deducted from the output tax:-
- (A) for non-VAT taxable items, VAT exceptional items, the collective welfare or personal consumption goods or taxable labor;
- (B) Abnormal losses related to the purchase of goods or taxable services;
- (C) Abnormal losses in finished products consumed, or purchased goods or taxable services;
- (D) The State Bureau, the finance, relevant tax authorities set for those the tax-payers, its own consumer goods;
- (E) in paragraph (A) to (D), it provides the transportation costs of goods and sales of duty-free goods transportation costs.