A minor impact for most buyers and a massive impact for some buyers.  An abstract topic that none the less is relevant to every buyer of goods from China.

In their article “China may cut export tax rebates”, my local English paper, the Shenzhen Daily reports “China was drawing up plans to either scrap or reduce export tax rebates on some of the country’s energy-intensive and high-polluting industries, domestic media reported yesterday, quoting unidentified sources.”

Excerpts of the article posted below. But here are some key points that buyers should understand about the VAT system in China.

The VAT rebate system is basically a tool the government can use to manipulate industries. For example, if the government wants to promote the exportation of a certain “desirable” product class, like medical or high tech items, then Beijing applies a high VAT rebate. The higher the VAT rebate the more money the exporter of record gets back from the government assuming they are fully licensed and have submitted the appropriate paper work. Conversely, when Beijing wants to steer its economy away from the production of “undesirable” industries that pollute or have other harmful side effects, they lower the VAT export rebate.

China is trying to climb the value added production ladder and wane itself off the low tech, low quality, low value items.  The frustrating point is that VAT rebate rates can be changed on short notice without warning as the government sees fit.  So if you are worried your production classification could fall into the “undesirable” category in the eyes of Beijing, it is very important to keep a finger on the pulse of potential VAT changes.

To help you stay up to date, send me (via the CSIC “ask the experts” service) the HS code for the product you are concerned about and I will consult the VAT rebate book and let you know the current rebate rate as well as confirm if there were any recent changes. While my crystal ball doesn’t allow me to predict with complete accuracy what changes the government may make in the VAT system, if I know your HS code I can give you my impression as to how close or far your product is from potentially falling into a class of products whose VAT rebate rate may be disincentivized in near future.

Wishing you successful China Sourcing!

Mike Bellamy

Author, “The Essential Reference Guide to China Sourcing” (chinasourcinginfo.org/book/)

 

China may cut export tax rebates

China was drawing up plans to either scrap or reduce export tax rebates on some of the country’s energy-intensive and high-polluting industries, domestic media reported yesterday, quoting unidentified sources.”

Scaling back on export rebates would mark China’s second such move since the outbreak of the global financial crisis in 2008 and be a double whammy for exporters, already facing the prospects of a rising yuan. The mounting pressures on exporters could accelerate their consolidation.

But on the other hand, analysts said the end of a tax kickback could have a bullish impact on prices of some commodities, such as steel, which have long suffered from overcapacity issues and deteriorating margins.

The National Development and Reform Commission, the Ministry of Finance and Ministry of Commerce were reviewing tax rebates on a list of goods in various sectors, including rubber, non-ferrous metals, steel and construction materials, and had not yet decided on the final tax reduction, the Economic Information Daily said.

Steel traders said the market was rife with speculation that the government could scrap an existing 9 percent rebate on some flat-steel products, a move which would greatly dent their price competitiveness in Asia.(SD-Agencies)

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