Core Viewpoint - The implementation of the draft regulations for the Value-Added Tax (VAT) law in China is a significant step towards enhancing the legal framework and operational guidelines for VAT, which is crucial for the country's fiscal revenue and economic structure adjustment [1][2][5]. Group 1: Key Changes in the Draft Regulations - The term "labor" has been removed from both the VAT law and the draft regulations, aligning with international standards by adopting the term "Goods and Services Tax" [2]. - The legal status of export tax refund management has been elevated, providing better protection for taxpayers and combating tax fraud [2]. - The draft regulations clarify that input tax credits for loan services cannot be deducted, maintaining the current rules to prevent increased financial leverage and liquidity risks for enterprises [2][3]. Group 2: Tax Incentives and Management - The draft regulations exclude beauty medical institutions from enjoying tax exemptions, highlighting the VAT's regulatory impact on specific industries [3]. - New provisions allow taxpayers to apply for refunds in cases of overpaid taxes due to sales discounts or returns under simplified tax calculation methods, reducing taxpayer burdens [3]. - Different input tax deduction treatments for mixed-use fixed assets and intangible assets based on their original value exceeding 5 million yuan reflect a government incentive for investment [3]. Group 3: Ongoing Considerations for Taxpayers - The draft regulations introduce a provision that non-taxable transactions cannot deduct corresponding input tax, echoing previous legislative intentions and sparking discussions [4]. - The absence of provisions regarding the calculation of sales amounts based on the difference does not imply the cancellation of the current "difference taxation" method, which may be addressed in future supporting documents [5]. - The VAT law is set to take effect on January 1, 2026, with the draft regulations providing operational guidance to enhance the certainty and operability of the VAT system [5][6].

Core Viewpoint - The expectation for the tax deduction of loan interest and related fees has been dashed, as the Ministry of Finance and the State Administration of Taxation have clarified that these expenses will not be deductible under the new VAT regulations set to take effect in 2026 [1][2]. Group 1: Tax Regulations - The draft regulations explicitly state that taxpayers cannot deduct input tax related to loan services and associated fees from their output tax [1][2]. - This aligns with existing regulations, which have historically prohibited the deduction of input tax for loan services and related fees [3]. Group 2: Financial Implications - The VAT is a significant source of revenue for the Chinese government, projected to generate approximately 6.57 trillion yuan in 2024, accounting for 38% of total tax revenue [1]. - Allowing deductions for loan-related expenses could significantly reduce tax revenue, potentially leading to a loss of several hundred billion yuan, which is not feasible given current fiscal constraints [4]. Group 3: International Comparison - Different countries have varying policies regarding the deductibility of input tax on loan services; for instance, Germany allows it, while Australia and Japan do not [4]. - The decision on whether to allow such deductions in China is influenced by the country's economic policies, tax structure, and financial regulatory environment [4].