Core Viewpoint - The article discusses a significant change in China's construction industry VAT policy, specifically the cancellation of a tax incentive for construction services provided under the "甲供材" (materials supplied by the client) model, effective from January 1, 2026 [4]. Summary by Sections VAT Policy Change - The Ministry of Finance and the State Administration of Taxation announced the cancellation of the simplified VAT calculation method for construction services under the "甲供材" model, which previously allowed a 3% tax rate [4]. - From January 1, 2026, projects that had been using the simplified method will continue under the old rules until completion, but new projects will be subject to the general VAT method with a 9% tax rate [4]. Implications for the Construction Industry - The "甲供材" model allows the client (甲方) to procure materials while the contractor (乙方) provides labor and auxiliary materials, resulting in minimal input VAT for the contractor [5]. - The simplified tax method was initially retained to ease the transition to VAT for the construction industry, which has lower financial management capabilities [5][6]. - The cancellation of the simplified method aims to enhance the VAT deduction chain and align with the principle of VAT neutrality, reflecting the maturity of the VAT system in the construction sector [6][7]. Competitive Fairness and Tax Compliance - The removal of the simplified tax method is expected to close loopholes in tax collection and prevent unfair competition between different types of construction enterprises [7]. - It will also streamline VAT flow across the entire construction supply chain, avoiding distortions caused by lower tax rates in intermediate stages [8]. - While the tax burden for contractors may increase due to the shift to a 9% rate, the ability to deduct input VAT could mitigate this impact, depending on the amount of input VAT they can claim [8].