China VAT Changes for 2008 and 2009 -- Rebates and More
There is news and it is now fact that China will put into motion by November 1st 2008 VAT changes that will be initiated for a variety of export categories. For those of you involved in the categories mentioned, this presents a pricing opportunity. It is noted that these actions are being put in place to bolster the manufacturers impacted. Additionally, read the later part of this post to see some potential changes that are being discussed for 2009 in relation to additional VAT rebates.
See below from the Chinese Governments official media portal about the Governments changes to the VAT categories mentioned. For the full story and reasons why go here.
BEIJING, Oct. 21 (Xinhua) -- China is raising tax rebates for certain exports to help producers cope with smaller profit margins as a result of slacking market demand, the yuan's appreciation and rising production costs.
Those rebates will start Nov. 1, according to a circular on the web site of the Ministry of Finance (MOF) on Tuesday.
The adjustment involves 3,486 items from labor intensive industries such as textile, garment, toy, hi-tech and high added value sectors like anti-AIDS drugs and tempered glass. Those items account for 25.8 percent of what's covered by the country's Customs Tariffs.
The new rebates are classified into six categories: five, nine, 11, 13, 14 and 17 percent.
For example, the export tax rebate for some toys, textiles and garments will be raised to 14 percent. There will be a nine percent rebate for certain plastic products, 11 percent for daily necessities and porcelain artifacts, 11 and 13 percent for some furniture.
According to an unnamed MOF official, the rebates will ease operation pressure for export enterprises and enhance their competitiveness. He added the adjustment would also have a positive impact on the development of the national economy.
Because exporter industries will have more money as a result of the rebate increase, China is hoping they will be able to withstand the world's financial crisis.
So whats going to happen in 2009 with the Value Added Tax (VAT)? Here is some insight from a recent story at Law and Tax News that we have heard similar insights from China Customs. Below is an excerpt and for the full story go here.
A tax cut in the shape of a VAT reform, expected to cost up to CNY150bn (USD22bn), has been formulated by the Chinese Finance Ministry and submitted to the Chinese State Council in a bid to stimulate the Chinese economy.
The reform involves the revision of the Provisional Regulations on Value Added Tax (VAT). The VAT law, introduced in 1994, underwent some changes two years ago, but this will be the first major reform of the legislation. Tax officials anticipate the reform could take three months to implement and cost between CNY100bn and CNY150bn in tax revenues.
The reform is aimed at shifting from a production-based VAT regime to a consumption-based system, which is practiced in most countries. The government has already trialed this system in several areas of China, but is now eager to roll the system out nationwide from 2009, not only to advance its tax modernisation agenda, but also to give the corporate and manufacturing sector a timely economic boost amid global economic uncertainty.
The current system means that companies wishing to invest in growth through the purchase of machinery and capital assets are not able to claim VAT deductions on their tax bills. Thus the reforms should encourage more investment in production. Contrary to early speculation, the reform is likely to be applicable in all industries except some restricted by Chinese law. It was previously assumed that the reform would only cover a few specific industries.
The Sourcejuice Team