China's State Administration of Taxation said Wednesday its experiment with value-added tax (VAT) reform has achieved positive results in northeast China since it was launched last year.

The experiment, which moves the tax from production to tax on consumer spending has encouraged northeast China to increase investment in machinery and equipment and phase out outdated equipment.

Experts say a consumption-type VAT means tax cuts for manufacturing companies as they would be allowed to have tax rebates on the tax levied on expenditures of raw materials and fixed assets.

The experiment was launched in July 2004 and it brought in tax revenues of 1.27 billion yuan (about US$159 million) from July and November of that year.

The VAT collected 1.47 billion yuan in the first half of this year in the region, including the provinces of Liaoning, Jilin and Heilongjiang.

China initiated an ambitious program last year to invigorate its so-called rust belt through a package of measures, including increased funding for updating outdated industrial projects.

A total of 197 industrial projects were selected for modernization with a total investment of 108.9 billion yuan (US$13.6 billion). That compares with only 100 projects in 2003.

Minister of Finance Jin Renqing said Monday that the VAT reform will be extended to other parts of the country during the coming five years.

(Xinhua News Agency December 22, 2005)