18th Oct 2006 Oct 2006 - Issues 3
Revision to the Chinese VAT Export Refund
In
China, companies are required to pay Value Added Tax (“VAT”) on goods
purchased locally in China. If
those goods are subsequently exported, the exporter could apply for a
refund of the VAT paid. The
export VAT refund rates are varied depending on the types of goods
exported, in which VAT could be refunded fully, partially or even with no
refund at all.
On
14 September 2006, the Ministry
of Finance,
the National Development and Reform Commission, the Ministry of Commerce,
the General Administration of Customs and State Administration of Taxation
jointly announced that China
has further reduced the export VAT refund rates for certain items, which
would lead to further increases in the absolute costs for exporters in
China. These
newly announced revision of VAT export refund rates have come into effect
on 15 September 2006.
The
revision
The
revision in the export VAT export refund rates could be categorized into
the following three categories (by product groups): (a) products where
export VAT refunds have been abolished; (b) products where export VAT
refund rates have been reduced; and (c) products where export VAT refund
rates have been revised upwards.
Abolishment
of VAT export refund
1.
All
non-metallic products (except salt and cement) listed in Article 25 of
import and export Tariff Regulation, coal, natural gas, olefin,
bitumen, silicon, arsenic, stone materials, non-ferrous metals as well as
certain scrap materials.
2.
Metallic
ceramic, 25 types of pesticide and their intermediary products, certain
finished products of leather, lead-acid battery and mercuric oxide
battery.
3.
Thin
fleece of goat, charcoal, crosstie, cork products, certain processed
primary wood products.
Decrease
in VAT export refund rates
1.
Refund
rate for steel products under 142-tariff heading has been reduced from 11%
to 8%.
2.
Refund
rate for ceramic products, certain finished products of leather and glass
products has been reduced from 13% to either 11% or 8%.
3.
Refund
rate for certain non-ferrous metallic materials has been reduced from 13%
to either 5%, 8% or 11%.
4.
Refund
rate for textile, furnishings, plastic, lighter, and specific wood
products has been reduced form 13% to 11%.
5.
Refund
rate for non-mechanically propelled vehicles and certain component parts
has been reduced form 17% to 13%.
1.
The
refund rate for significant technical equipments, certain IT products, and
bio-medical products as well as certain “encouraged” high-tech
products has been increased from 13% to17%.
2.
The
refund rate for selected processed products made from agricultural
products has been increased from 5% or 11% to 13%.
Rationale
Apart
from attempting to address the issues of high consumption and high
pollution in China, Chinese high favorable balance of trade also
contributed to the revision of VAT export refund rate. The
General Administration of Customs has announced that based on the trading
data of August 2006, another record high trade surplus of US$18.8 billion
was recorded in August 2006. This
is the 28th consecutive month where favorable balance of trade
was recorded.
Facing
with the continuing high favorable balance of trade that attracted critics
from various parties, Mr. Bo Xilai, the Minister of the Ministry of
Commerce, has indicated that China has been considering various ways to
reduce the high favorable balance of trade.
The recently announced revision of VAT export refund rates may be
considered as one of China’s efforts in addressing this issue.
Conclusion
In
conclusion, this revision represents another structural change to the VAT
export refund policy of China. The
Chinese government will be using it to direct and monitor economic
activities.
The
revision has raised the VAT cost for businesses exporting “high energy
consumption and high polluting” products while eliminating or reducing
the VAT cost on the exportation of goods that fall under the “high
technology and other encouraged industries”.
At the same time, it is also hope that the revision could reduce
the pressure on an upward revision of the Renminbi.
"Zeng Zhi Shui"
(Value Added
Tax)
"Ying Ye Shui"
(Business Tax)
