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Further Extension of Additional VAT “Super Deduction” Policy for the Lifestyle Services Industry in China

  • Qualified enterprises operating in the lifestyle services sector in Mainland China will continue to enjoy a 15% “super deduction” of creditable input VAT in the current period.

In order to tide businesses over the pandemic, the additional VAT “super deduction” policy for the lifestyle services industry, which was originally due to expire in December 2022, has been further extended most likely beyond the end of this year. Under the policy, eligible businesses will continue to be entitled to a 15% “super deduction” of creditable input VAT in the current period.

The original VAT “super deduction” policy

In March 2019, the Chinese government had announced that eligible businesses from the following sectors would be entitled to a 10% VAT “super deduction”, effectively enabling them to increase their input VAT credits by 10%, for the period from 1 April 2019 to 31 December 2019:

  • Postal services;
  • Telecommunication services;
  • Modern services including business support services, cultural and creative services, film, television and radio services, information technology services, logistics services, and research and development services;
  • Lifestyle services including accommodation services, cultural and sports services, education and healthcare, food and beverage, and travel and entertainment.


In September 2019, the “super deduction” had been increased from 10% to 15% for qualified enterprises operating in the lifestyle services industry, subject to the amount of deductible input VAT for the current period.

An extension of the incentive policy to 31 December 2022 had already been announced by the Ministry of Finance and the State Taxation Administration earlier in spring. In a State Council executive meeting held in July 2022, a further extension of additional VAT deductions for the services sector was affirmed, however. This has been interpreted by many as including a further extension of the VAT “super deduction” policy.

To calculate the amount of additional VAT credits accrued:

Amount of additional input VAT credits = Amount of deductible input VAT for the current period x 10% or 15% “super deduction”


The eligibility for “super deductions” is, however, subject to several caveats:

  1. The provision of qualified services (as listed above) shall constitute more than 50% of total sales*;
  2. Subject to special conditions, exporters of goods and services may not be eligible for “super deductions”;
  3. There are provisos that govern how calculations may be affected by input VAT being carried forward;
  4. The enterprise must be a general VAT taxpayer for input VAT to be credited against output VAT**.


*For enterprises engaged in the provision of postal, telecommunication and modern services that were established after 1 April 2019, total sales shall be based on the first three months of operation. For enterprises engaged in the provision of lifestyle services that were established after 1 October 2019, total sales shall be based on the first three months of operation.

** Small-scale VAT taxpayers cannot deduct input VAT from output VAT.

In practice, the financial implications of “super deductions” will be determined by the enterprise’s profit margins and the make-up of its VAT inputs. In theory, the impact would translate into a rate reduction of approximately 0.5% for enterprises paying VAT at a rate of 6%, providing that 50% of their cost structure is liable to VAT.

The VAT “super deduction” policy has been considered significant in the development of China’s VAT system; it belongs to a host of policies aimed at overhauling the VAT framework. For example, another noteworthy change is allowing refunds for excess input VAT credits. Previously, excess input VAT credits could only be carried forward to offset output VAT. A further example is the maximisation of input VAT credits by encouraging businesses to apportion creditable and non-creditable input VAT. These measures have been hailed as a milestone in the adherence to international best practice in respect of VAT.

Although the state of VAT affairs can play an important role in a business’ cash flow, this area is often overlooked and not fully optimised in cost reduction exercises. Companies would be well advised to perform a VAT health check to review existing VAT processes while carefully assessing the implications of government incentive policies.

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