VAT tax-payers are small-scale tax-payers and the ordinary tax-payers. And each type is subject to different VAT calculation and tax methods under the requirements.
"Provisional Regulations of the People's Republic of China on Value-Added Tax” Article 2 states: Article 11 states the criteria for Small-scale taxpayers is as follows:-
- The one which engage in the production of goods or provision of taxable services from the tax-payers, as well as the one which engages in the production of goods or provision of taxable services for this end and also engages in wholesale or retail goods. Tax-payers with an annual sales are subject to VAT (hereinafter referred to as taxable sales) below RMB 500 000 ( including the principal, same as below);
- In addition to paragraph 1, it provides that a tax-payer other than the annual taxable sales of 80 million or less.
The first paragraph, which states the production of goods or the provision of taxable services, refers to the tax-payer's annual production of goods or the provision of taxable services and its sales are accounted for the proportion of annual taxable sales for more than 50%.
Over and above the standard of small-scale tax-payers is the ordinary tax-payer: But the ordinary tax-payer qualification does not arise. It must apply to the respective tax bureau to obtain approval for becoming a VAT ordinary tax-payers.
Small- scale taxpayers, after selling goods or taxable services, has according to its sales amount and the rate of levy, calculates for the tax amount payable in a simple way, and no items should be deducted. Formula for computing the tax payable: Tax payable = sales × levy rate; Small-scale VAT tax-payers = tax rate of 3%.
Ordinary tax-payers, after selling goods or providing taxable services (referred to selling goods or taxable services), shall according to the taxable amount of current output tax deducts the Input tax balance thereafter. Formula for computing the tax payable : Tax payable = Output tax - Input tax
If the output tax payable is less than the current lack of input tax deductible, its deficiency can be carried forward to offset the next.
Taxpayers who engage in different tax rates of goods or taxable services shall be accounted for different tax rates, sales of goods or taxable services; sales not accounted for separately from the high tax rate.