China’s VAT Refund Moves in Both Directions

Last year, I spent quite a bit of time reporting on changes in the China VAT. For those who are new to the nuances of how Chinese suppliers profit from their overseas transactions, the Chinese VAT rebate reflects a certain percentage refund of the export duty paid to the government based on the harmonized code classification of an item in question. Historically, much of the Chinese suppliers profit was tied up in their VAT rebate. In the past 18 months, the Chinese government has reduced or eliminated the VAT refund across thousand of classifications in an effort to redirect investment into industries where the central government wants the nation to go (i.e., higher-valued added areas rather than basic materials that pollute the environment). This has forced suppliers to raise export prices to maintain a profit.

MFGx recently reported that China has once again tweaked the VAT rebate. But this time, it's moving in a favorable direction for producers and global buyers alike. According to MFGx, "the rise is meant to ease cost pressures on China's textile producers slapped with rising costs, the move is minimal (from 11% to 13%) and isn't seen as a trend to reverse the drastic rebate cuts of the past year." But in some cases, VAT rebates have been eliminated in their entirety for such products and items as "zinc, silver and batteries (seen as highly polluting)." AJ, the blogger-in-chief of MFGx, reports that his "sources on the ground in Shanghai confirm that the recent rebates have been met with little attention, compared with the sweeping cuts of last year that sent shock waves throughout all global manufacturing supply chains."

- Jason Busch

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