Notice regarding certain Value-Added Tax (VAT) issues related to sales of food that are not consumed on-site by taxpayers in the hotel and catering industries (SAT Announcement [2013] No. 17)
Synopsis
On 22 April 2013, the SAT released SAT Announcement [2013] No. 17 (“Announcement 17”) that took effect on 1 May 2013. Announcement 17 clarifies that taxpayers in the hotel or catering industries can choose to pay VAT as small-scale taxpayers on sales of food for off-site consumption as these sales shall be categorized as infrequent VAT activities according to Article 29 of the VAT Implementation Rules (“Article 29”).
Our observations
On 24 November 2011, the SAT released SAT Announcement [2011] No. 62 (“Announcement 62”) stipulating that taxpayers in the hotel or catering industries should pay VAT instead of Business Tax (BT) on sales of food for off-site consumption. Taxpayers who qualify under Article 29 can choose to report VAT as small-scale taxpayers. However, Announcement 62 did not provide specific provisions on how to determine the eligibility for Article 29, therefore local tax authorities may have different interpretations in this regard.
The issuance of Announcement 17 has clearly addressed this issue by clarifying that sales of food for off-site consumption can qualify under Article 29. Hence, such taxpayers can choose to pay VAT as small-scale taxpayers. It is good news for relevant taxpayers who could benefit in various ways:
Ø Reduce taxpayers’ VAT burden
If such taxpayers report VAT as general VAT taxpayers at the moment, they may not have substantial input VAT to credit against output VAT. To stay competitive, the additional VAT cost may need to be absorbed by the taxpayers instead of fully passed onto customers. With clarification of the VAT position, taxpayers can now pay a VAT of 3% over sales of takeaway food, which could help them to reduce their tax burden and remain competitive.
Ø Reduce taxpayers’ administrative costs
Business activities of taxpayers in the hotel and catering industries are mainly subject to BT instead of VAT. They may not be familiar with a VAT filing, especially filing VAT as general VAT taxpayers. Small-scale VAT payers can pay VAT based on a simplified process, e.g. collection/validation of input VAT invoices are not needed; the administrative burden can be as light, compared with BT reporting.
You may click this link to access full content of Announcement 17: