China has become the world's first country to implement a Value-Added Tax system for its financial sector through reforms that took effect on May 1st. What kind of impact will the VAT have on China's financial industry? 

Zuo Peng is a manager in a Shanghai finance software services company. He has been busy testing the VAT system for several banks. After payments are received, he gives VAT invoices to his customers that can help them save costs.

"The rate for software services is 6 percent. So the value-added tax for this payment is 5,660 yuan. Before May, banks could not deduct the tax. But after the VAT was officially implemented from May, banks can use the invoice to deduct VAT in tax offices. For this bank, they can save 5660 yuan in costs," Zuo said.

Compared to the previous 5 percent business tax, the 6 percent VAT seems higher for banks. But in fact, the banks can now deduct the purchase of technologies and equipment and payments for services.

Meanwhile, financial institutions can also issue VAT invoices to their customers, extending the deduction range of those tax payers.

Analysts say the VAT deductions can boost the financial sector's willingness to upgrade its systems, equipment and software. Moreover, it marks a fully completed VAT circle in Chinese economy.