The VAT Act 2026 and implementing regulations are officially in force, bringing about the biggest adjustments in the last decade. For financiers, the familiar deduction rules of the past have changed.

What exactly has been changed in this revision? Let's look at it in one main line: Shift from "tax control by vote" to "tax control by business substance".This is reflected in three main areas:

1,Change 1: Tax time has been moved up

It used to be possible to put off filing taxes on advance receipts, but not anymore.

According to the Announcement of the Ministry of Finance and the General Administration of Taxation No. 13 of 2026, the time of tax obligation for service fees received in advance is clearly defined:

👉Pre-charging for services:Full tax is payable on the date the service is first rendered or on the date of the contract (whichever is earlier).

👉Rent in advance:Tax liability arises when payment is received in the course of rendering services

Take a practical example: a hair salon in June 2026 charged 2000 yuan for the annual card of hair coloring, and the contract agreed that the customer can consume at any time from July 1st onwards. Even if the customer visits the store for the first time in August, the time of incurring tax liability is July 1, and the hairdresser is required to file a tax return for the full amount of 2,000 RMB.

Simply put: trying to defer taxes by delaying collections is a road blocked.

2, change two: input credits more refined

It used to be that you could get a deduction when you bought something, now it depends on how you use it.

 Food service: differentiated uses

👉 Used for non-consumption (e.g. manufacturing operations) - deductible

👉 Used for consumption (e.g., entertaining clients, annual dinner) - not deductible

Judgment Tip: What is charged to the cost account is basically non-consumption and what is charged to the expense account is basically consumption.

Long-term assets: over $5 million subject to phased adjustments

According to Ministry of Finance General Administration of Taxation Announcement No. 15 of 2026:

👉 Original value not exceeding $5 million: full credit

👉 Original value over $5 million: full credit, then adjusted to carry forward on an annual basis

👉 Real estate, land use rights: adjustment of 20 years

👉 Airplanes, trains and ships: 10-year adjustment

Other long-term assets: adjusted by 5 years

This means that a one-time credit for inputs at the time of purchase will need to be rolled over from year to year if it is used later in a tax-exempt or group welfare program.

Loan interest: not deductible for the time being

According to Article 21 of the Implementing Regulations, the input tax credit for loan interest and directly related expenses shall not be deducted for the time being. However, the policy clearly states that "it should be studied and evaluated in due course", leaving room for future adjustments.

Core logic: Inputs must be truly matched to taxable income and not be "disguised".

3Changes 3: Simplified Taxation Narrowed

April 30, 2016 became a watershed moment:

👉 Older projects before this one: still taxable on a 5% simplified basis

👉 New projects after this: in principle, all have to be taxed in general.

The former simplified tax provisions for construction services A-supply works and general contracting of construction works have been discontinued from January 1, 2026 onwards.

Smaller taxpayers get a boost

According to Ministry of Finance General Administration of Taxation Announcement No. 10 of 2026:

January 1, 2026 to December 31, 2027

👉 3% levy rate for small taxpayers (excluding sales and rentals of real estate) reduced to 1%

This is a real relief for many small and micro enterprises.

Other simplified tax policies

👉 Sale of used fixed assets: 3% less 2%

👉 Housing rental: 5% reduced by 1.5%

👉 Used car dealerships: 31 TP3T minus 0.51 TP3T

💡 It is important to note that general taxpayers are not allowed to change for 36 months after choosing simplified tax calculation.

📕 one sentence summary

The new tax law is not to increase the tax burden, but to make it impossible to run away from taxes that should be paid, and to offset taxes that should not be offset.

For businesses, don't play by the old rules. Review contracts, look at the business, reconcile invoices - every aspect has to be revisited.In the past by "procrastination" can solve the problem, now can not be delayed; in the past by "mixing" can be deductible inputs, now can not be mixed.