Source: Jeff Yoders/MetalMier
China is planning to remove its business tax on services and replace it with a value-added tax that applies to both goods and services.
What does this mean for companies that purchase metals abroad? A lot. A projection has shown that removing the business tax and replacing it with what many believe the new VAT will be will cost the government 1 trillion CNY ($161.2 billion) in tax revenues, but Beijing is aiming to stimulate its economy and increase growth long-term, so the government is willing to take a hit in tax revenue in the short term.
What the New VAT Means to Purchasers
A metals purchaser who works with suppliers in China confidentially told MetalMiner that, under China’s new VAT plan, metals such as cold-rolled steel would receive an import tax of 3-6% depending on the thickness. The VAT on these goods would be 17% of which 9% gets refunded when it is exported, creating a net VAT of 8% and a net total tax of 11-14%.
Purchasers are currently analyzing several scenarios of what metals producers in China, Taiwan, South Korea and other markets that would be affected by the new VAT will do to keep their products competitive when it goes into effect.
New VATs in October
A similar VAT program was tried in Shanghai as a pilot project as a replacement for the business tax. An announcement on both the property VAT and a separate VAT for financial transactions is expected in July but both new VATs are not expected to go into effect until October.