Editor's Note: On December 30, 2025, the "Implementation Regulations of the Value-Added Tax Law" was officially promulgated and will come into force simultaneously with the "Value-Added Tax Law" on January 1, 2026. As a supporting administrative regulation for China's largest tax category, the Regulations, on the basis of maintaining the basic stability of the current tax system, have made key refinements and design optimizations to many principled provisions, and its introduction has attracted much attention from all walks of life. To deeply understand the Regulations, in addition to comparing them with the "Value-Added Tax Law", previous Interim Regulations, Implementation Rules, Caishui [2016] No. 36 Document and other documents, an important perspective is to conduct comparative study with the "Exposure Draft of the Implementation Regulations of the Value-Added Tax Law" promulgated in August 2025. This can not only reveal the logical evolution of legislative decisions, insight into the improvement of scientificity and rationality of VAT legislation under the principle of taxation by law, but also further predict the actual impact of policy implementation on market entities. This article focuses on the comparison between the Implementation Regulations and the Exposure Draft, analyzes key provisions, with a view to providing guidance for taxpayers to grasp policy directions and effectively respond in compliance.

Article 2 of the "Implementation Regulations of the Value-Added Tax Law" has undergone significant changes in the authority to determine the scope of taxation. The version in the Exposure Draft stipulated that the competent financial and tax departments of the State Council directly determine the specific scope of goods, services, intangible assets and real estate; now it has been adjusted to require the competent financial and tax departments of the State Council to put forward a plan, which shall be promulgated and implemented after being reported to and approved by the State Council. This adjustment raises the approval level, is an important embodiment of the principle of taxation by law, helps to restrict the discretionary power of tax collection and administration departments, avoids arbitrary adjustment of the taxation scope, thereby enhancing policy stability and market expectations. For example, whether carbon emission rights belong to intangible assets and are subject to VAT will need to be approved and identified by the State Council in the future. In contrast, the annotation on the scope of consumption tax on refined oil products is still formulated by the Ministry of Finance and the State Taxation Administration, with a relatively low rank and a relatively weak embodiment of the principle of taxation by law.

In the definition of sales volume, Article 15 of the officially promulgated "Implementation Regulations of the Value-Added Tax Law" has made important conceptual simplification and logical optimization to the original Exposure Draft, abandoning the concept of "extra-charge". When explaining "total consideration" in the original Exposure Draft, it was still listed in parallel with "extra-charge", which had a conceptual overlap between "total" and "extra-charge" in logic, and the expression was not concise enough, even suspected of self-contradiction. The official Regulations abandon the term "extra-charge" and directly stipulate that certain specific taxes, fees and payments collected on behalf of taxpayers are not part of the "total consideration" in their sales volume, which makes the definition of "total consideration" clearer and more consistent. At the same time, it does not exceed the provisions of Article 17 of the "Value-Added Tax Law", but based on the definition of "consideration related thereto" in the Law, further clarifies and lists the payments that are collected by taxpayers but do not belong to them in economic essence, thus excluding them from the taxable sales volume. This adjustment makes the expression of the regulations more concise and rigorous, and more in line with the taxation principle of VAT.

Regarding the provisions on non-deductible input tax, Article 22 of the "Implementation Regulations of the Value-Added Tax Law" has made a more precise definition of the connotation of "non-taxable transactions", effectively resolving disputes in the practical circle. The original Exposure Draft generally stipulated that input tax for non-taxable transactions other than the "non-taxable" situations listed in Article 6 of the "Value-Added Tax Law" shall not be deducted. The officially promulgated Implementation Regulations clearly define three conditions that must be met simultaneously for "non-taxable transactions with non-deductible input tax": first, the occurrence of business activities outside the taxable scope specified in Articles 3 to 5 of the "Value-Added Tax Law"; second, the acquisition of monetary or non-monetary economic benefits related thereto; third, not belonging to the situations specified in Article 6 of the "Value-Added Tax Law". This revision makes the logic of the regulations clearer and reflects the basic principle of "consistency between taxation and deduction" of VAT. The Regulations aim to regulate transaction behaviors that have no VAT payment obligation but essentially constitute business activities and obtain economic benefits. For example, for the relevant expenses incurred by enterprises to obtain local government financial rebates, such as travel expenses and consulting fees, the corresponding input tax shall not be deducted in accordance with the new regulations.

The changes in Article 23 of the "Implementation Regulations of the Value-Added Tax Law" are reflected in two aspects: first, expanding the scope of application. On the basis of the simple tax calculation method projects and VAT-exempt projects targeted by the original Exposure Draft, the official Regulations explicitly add the new situation of "non-taxable transactions with non-deductible input tax", forming a rigorous connection with the provisions of Article 22. Second, changing the expression method of calculation rules, deleting the specific and fixed mathematical formulas in the Exposure Draft, and adopting a more principled expression instead, stipulating that the calculation shall be carried out "according to the proportion of sales volume or income". This reflects the prudence and flexibility in legislative technology. The deletion of specific formulas indicates that legislators have absorbed feedback from practice that the original formulas are insufficient in applicability and scientificity in certain complex commercial situations, reserving space for the Ministry of Finance and the State Taxation Administration to formulate more practical and refined allocation methods or supplementary provisions in the future.

Regarding the subsequent handling rules for deducted input tax, the change in Article 24 of the "Implementation Regulations of the Value-Added Tax Law" is that the original Exposure Draft stipulated that if the deducted input tax subsequently falls under the situations specified in Items 3 to 6 of Article 22 of the "Value-Added Tax Law" and Article 22 of these Regulations (i.e., "non-taxable transactions with non-deductible input tax"), the input tax shall be transferred out. The officially promulgated Regulations delete the citation of "Item 6 and Article 22 of these Regulations", limiting it to the situations specified in Items 3 to 5 of Article 22 of the "Value-Added Tax Law". The logic here is that for situations that occur afterwards or are difficult to predict, such as changes in use and occurrence of losses, the regulations retain the adjustment space of deducting first and transferring out later; while for situations such as "non-taxable transactions with non-deductible input tax" where the use can be clearly determined to be inconsistent with the deduction conditions at the time of the transaction, deduction first and transfer out later are not allowed. This means that, for example, the input tax for expenses incurred by enterprises to obtain non-taxable financial rebates shall not be deducted at the time of occurrence. If the taxpayer still makes the deduction, it will directly constitute an non-compliant act. This strengthens the taxpayer's obligation of independent judgment at the time of deduction, requiring taxpayers to make more prudent initial judgments based on the substance of the transaction.

Regarding the handling rules for input tax on long-term assets, compared with the Exposure Draft, Article 25 of the "Implementation Regulations of the Value-Added Tax Law" has a more concise expression. First, it deletes the repetitive provisions on assets for "special purposes" and only retains the specific handling methods for assets for "mixed purposes", making the provisions more focused. Second, it enhances the operability of subsequent implementation, revising the expression of adjustment based on "depreciation or amortization period" in the original provisions to a more inclusive "adjustment period". This change in wording reserves the necessary refinement space for the Ministry of Finance and the State Taxation Administration to design more scientific and reasonable adjustment cycles for different types of long-term assets when formulating specific operating methods in the future. In addition, the Regulations delete the complex provisions on "calculation based on net value when the use changes" in the original Exposure Draft, indicating that legislators recognize that this situation may lead to disputes or calculation difficulties in practice, and thus choose to authorize the competent departments to formulate specific operating methods for such complex issues separately.

Regarding the provisions on the handling of violations of tax preferences, the "Implementation Regulations of the Value-Added Tax Law" has deleted Article 35 of the original Exposure Draft in its entirety. The Exposure Draft stipulated that if a taxpayer fails to conduct separate accounting or improperly enjoys preferences through fraudulent means, not only shall they not enjoy the preferences, but the tax authority shall also recover the tax already enjoyed, and if it constitutes tax evasion, it shall be handled in accordance with relevant provisions. This deletion reflects the consideration of legislative simplification and systematicness. Such procedural and general rules on the consequences of illegal acts have already been stipulated in the "Tax Collection Administration Law". Repeating them in the Implementation Regulations is unnecessary and may cause inconsistencies in expressions within the legal system due to the use of words such as "recover".

Article 35 of the "Implementation Regulations of the Value-Added Tax Law" has adjusted and supplemented the provisions of the original Exposure Draft. First, it adds the withholding obligation principle for natural persons. The Regulations clearly stipulate that if a natural person conducts a taxable transaction that meets the relevant provisions, the domestic unit that pays the consideration shall be the withholding agent, and the specific operating methods shall be formulated by the competent financial and tax departments of the State Council. This fills the loophole in the original rule system where the withholding liability may be ambiguous when the natural person is the purchaser, ensuring the integrity of the tax collection chain. Second, for the situation where "a foreign unit or individual leases real estate to a domestic natural person", the official Regulations revise the mandatory expression of "shall entrust a domestic agent" in the original provisions to the provision of "if there is a domestic agent, the domestic agent shall declare", which is also more consistent with the framework logic of the "Value-Added Tax Law".

In the management of export business, the adjustments in Article 48 of the "Implementation Regulations of the Value-Added Tax Law" are reflected in two aspects. First, it principles the specific declaration period rules, deleting rigid dates such as "before April 30 of the following year" in the original Exposure Draft, and only requiring "declaration within the prescribed time limit" in principle, reserving space for formulating more flexible detailed rules in the future. Second, it tightens the tax liability for entrusted export, clearly stipulating that if the entrusted procedures are not completed, the shipper shall directly bear the obligation of paying VAT. Compared with the previous expression of "tax refund (exemption), VAT exemption or VAT payment in accordance with the provisions of this Article", the subject and consequences of liability are clearer and stricter, aiming to regulate trade behaviors and plug loopholes in tax collection and administration.

In the design of anti-tax avoidance rules, the core adjustment of Article 53 of the "Implementation Regulations of the Value-Added Tax Law" is to clearly incorporate the general anti-tax avoidance rules in the VAT field into the unified legal framework centered on the "Tax Collection Administration Law". The expression in the original Exposure Draft was "the tax authority has the right to make adjustments in accordance with reasonable methods", which granted the tax authority relatively direct and extensive discretionary power. The official Regulations revise this to "the tax authority may make adjustments in accordance with the provisions of the 'Tax Collection Administration Law' and relevant administrative regulations". This follows the principle of taxation by law, requiring any anti-tax avoidance adjustment to be based on the clear provisions of superior laws such as the "Tax Collection Administration Law", thereby regulating the law enforcement authority of tax authorities and avoiding the generalization of discretionary power. At the same time, this means that the initiation conditions and adjustment methods of VAT anti-tax avoidance investigations, such as following the "arm's length principle" for related transactions, must be connected with the provisions in the "Tax Collection Administration Law" system.

In addition to the provisions analyzed above, the "Implementation Regulations of the Value-Added Tax Law" has further improved the overall scientificity, rigor and operability of the regulations through a series of detailed textual revisions and detail optimizations. In terms of the standardization of legal terms, the Regulations adjust "specify" to "list", "administrative unit" to "administrative organ", and the previous general expressions for contractors, contractees and other relevant parties have been adjusted to separate and clear listings, all reflecting the scientificity and rigor of legislative expressions. In addition, adding the word "temporarily" before the deduction rules for interest expenses of loan services reserves flexible space for subsequent policy evaluation and dynamic optimization. On the whole, the introduction of these Implementation Regulations reflects the deepening of the principle of taxation by law, the implementation of the principle of consistency between taxation and deduction, and the improvement of the internal logic of the legal system. These changes jointly strive to build a more stable, transparent and fair VAT system environment, thereby better stabilizing market expectations and safeguarding national tax rights and interests.

In the later stage, we will focus on the core differences and important changes between the new and old rule systems such as the "Value-Added Tax Law", "Implementation Regulations of the Value-Added Tax Law", Interim Regulations on Value-Added Tax and their Implementation Rules, and Caishui [2016] No. 36 Document to conduct further research and analysis, and put forward professional opinions on the impact changes in relevant key industry fields and VAT compliance.