The staff workers of Taxation Bureau of Quanzhou city, Southeast China's Fujian Province, receive taxpayers. File Photo: Xinhua

Chinese lawmakers on Wednesday voted to adopt a law on value-added tax (VAT), a major progress in enforcing the principle of law-based taxation.

The law, which was passed at a session of the Standing Committee of the National People's Congress (NPC), the national legislature, will take effect on January 1, 2026, the Xinhua News Agency reported.

With the introduction of the law, 14 tax categories out of 18 in China have their own laws, covering the majority of tax revenue and marking significant progress of implementing the principle of law-based taxation.

The approval of the VAT law to consolidate previous regulations in the field marks an improvement of the system of socialist rule of law with Chinese characteristics, and the institutional arrangement will help stabilize market expectations and strengthen the confidence of market subjects, Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Wednesday.

Xi said the passing of the law is also in line with the resolution adopted at the third Plenary Session of the 20th Communist Party of China Central Committee held in July, as it noted "fully implementing the principle of legality of taxation." 

VAT is the largest tax category in China. According to data from the Ministry of Finance, the country's VAT revenue reached 6.93 trillion yuan ($950 billion) in 2023, accounting for about 38 percent of national tax revenue.

The detailed provisions of the law included the exemption of VAT for small-scale taxpayers, and exemptions for some agricultural products, imported instruments and equipment for scientific research and teaching, some imported goods for the disabled and services provided by welfare institutions such as nurseries, kindergartens and nursing institutions for the elderly, according to Xinhua.

The VAT is closely related with market subjects and their operations. A stable transition of the VAT law will help elevate market confidence, boost high-quality economic development and improve the country's tax business environment, Wan Zhe, an economist and professor at the Belt and Road School of Beijing Normal University, told the Global Times on Wednesday.

"VAT exemptions for sectors such as agricultural products, kindergartens and elderly care services also underscore the central government's support for their high-quality growth," Wan said.

In recent years, China has conducted rounds of reform on VAT, further simplifying the tax system, reducing double taxation and lowering tax burden on small and medium-sized enterprises. In 2019, the country cut the VAT rate for manufacturers to 13 percent from 16 percent, and to 9 percent from 10 percent for sectors including transport, construction and basic telecommunication services.

In August 2023, the Ministry of Finance said it would extend VAT exemption for small-scale taxpayers until the end of 2027.

Recently, the country rolled out tax policies to support the steady and healthy development of the real estate market. Residents are exempt from VAT when they sell their homes at least two years after purchase.