China's VAT Law Takes Effect Jan 1, 2026; H1 Revenue RMB 3.86 Trillion, New Taxpayers 1.09 Million
China's new Value-Added Tax Law took effect on January 1, 2026, establishing the first dedicated legislation for the country's largest tax. In H1 2026, domestic VAT revenue reached RMB 3.86 trillion, up 6% year on year, while total tax revenue was RMB 9.79 trillion. The law clarifies nine statutory exemptions, tightens general taxpayer registration, and enhances input tax credit refunds and electronic invoice equivalence. New general taxpayers rose 25.2% to 1.09 million, manufacturing sales grew 7.3%, and export rebates rose 7.7%.
The Value-Added Tax Law officially took effect on January 1, 2026. As China's largest tax category, its legislative process and implementation have drawn wide attention. In the first half of 2026, national tax revenue reached RMB 9.79 trillion, of which domestic VAT revenue amounted to RMB 3.86 trillion. The implementation of the VAT Law and its implementing regulations marks the first dedicated legislation for the largest tax, yielding multiple positive effects in tax system certainty, legal fairness, smooth industrial circulation, and tax administration convenience.
The new law specifies nine categories of statutory tax exemptions, elevates the threshold system to the legal level, and streamlines the original 11 deemed taxable transaction scenarios to three, fully reflecting the principle of substance-over-form taxation. It also optimizes the criteria for determining mixed sales, better aligning with the diverse business operations of taxpayers. In the first half of the year, VAT revenue collected by tax authorities grew 6% year on year.
In terms of legal fairness, the new law aims to better leverage the neutral role of VAT, improve the system, close loopholes, and promote fair competition among business entities. It clarifies that small-scale taxpayers whose annual sales exceed RMB 5 million must register or be recognized as general taxpayers in the 'current period' rather than the 'next period', effectively closing the previous loophole where large transactions could exploit small-scale taxpayer preferences. In the first half of the year, 1.09 million new general VAT taxpayers were registered nationwide, up 25.2% year on year.
Regarding smooth industrial circulation, the new law for the first time at the legal level clarifies that excess input tax credits can be either carried forward to the next period for deduction or applied for refund, and introduces a system for phased adjustment of input tax on long-term assets. This further maintains the integrity of the VAT chain with consistent collection and deduction, effectively reducing double taxation on goods and services at various stages of circulation. Tax data show that in the first half of the year, national manufacturing sales revenue grew 7.3% year on year, and inter-provincial manufacturing sales grew 7.7%.
In terms of tax administration convenience, the new law for the first time at the legal level confirms that electronic invoices have the same legal effect as paper invoices. It streamlines and merges VAT filing forms, combining the forms for general and small-scale taxpayers into one, and uses taxpayer invoice information to automatically pre-fill relevant data on the filing forms. In the first half of the year, export tax rebates processed by tax authorities for enterprises grew 7.7% year on year, with the average processing time for normal export rebates kept within six working days.