For more on VAT reform, we are joined by my colleague Yang Zhao in the studio.

Q1. what is the major goal of this tax reform?

YZ:This is China' s biggest tax overhaul in more than two decades. Chinese Premier Li Keqiang has promised all industries will benefit from the reforms. To pay for the tax deductions, the government will increase its deficit-to-GDP ratio to 3 percent -- up from 2.3 percent last year.  A pilot program between 2012 and 2015 saved 6 million firms around 640 billion yuan in taxes. Once it has taken full effect, the new legislation will save Chinese companies an estimated 560 billion yuan EACH YEAR. The reforms are meant to encourage innovation.  The new policy gives manufacturers tax breaks for investments in research and development. The reforms will also strengthen China's service industry, which accounted for more than half of Chinese GDP for the first time last year. Logistics, broadcasting and aviation industries will all pay VAT. Before the reform, global companies like call-center service providers, used to pay a 5% business tax. The new VAT tax rate for them will be zero. The changes will encourage exports of higher value services.

Q2. What do you think is the most difficult part of the reform?

YZ: Like I said earlier, the way VAT works is pretty straight forward. Companies are only taxed on the value that they ADD to a product or service. The government looks at the price a company pays for a good when they buy it -- and the price they receive when they sell it. Companies only pay a tax on the difference between the two. The more a company pays for inputs -- the less tax it has to pay. Firms need a VAT invoice from their suppliers to verify their input costs.  if you buy from smaller companies or even individual, they cannot issue the VAT invoice by themselves but need to through tax authority, making it hard to collect invoice in practice. Another thing is not all costs is deductible, one example are transport costs. As of right now, high way toll fees can't be deducted. That's a big cost for transportation companies and will affect their tax burden. Companies receive VAT invoices from their suppliers and issue VAT invoices to their customers. For VAT to work, all sectors on this chain need to be included. That's the most difficult part.

Q3. What does the tax reform mean for multinational companies in China?

YZ: The change has significant ramifications for multinational companies doing business in, or with China. If you are a global cross border services provider, like a back office support service, a 5 percent business tax used to be applied to your business. Now the export of services could be zero-rated or exempt from the VAT. If you sell or import goods to China, like manufacturers, wholesalers, and retailers, no input VAT credits could be claimed for the purchase of services before, because they were subject to the Business tax, but now input VAT credits can be claimed for service purchases. If you are service provider IN China who registers as a general VAT taxpayer, you are entitled to claim input VAT credits for the purchase of goods, fixed assets and services. Input credits were ineligible to claim before the reform.