[Editors note: This article shows a glimpse of how China manipulates its value added tax (VAT) rebate system to incentivize exports in certain products. Chinese firms can sell at or below cost, and make money on the government VAT rebate check.]
[by Annie Li | October 16, 2014 | Daily Media Report of the American Iron and Steel Institute]
China’s Ministry of Finance (MOF) will discuss making changes to China's harmonized system “HS” codes as well as export taxes and VAT rebates for all commodities including steel at a meeting in November, a ministry official confirmed to Platts Wednesday.
“Tax adjustments will be finalized either in November or December and will take effect from January 1, 2015," the official said.
“Representatives from provincial finance departments, tax experts as well as various trade associations" would be invited to discuss any changes, which would include the China Iron & Steel Association (CISA), he added.
Chi Jingdong, CISA vice secretary general, was quoted in media last week as saying that export tax incentives may be cancelled in 2015. Steel mills, exporters and analysts polled by Platts said that it was rumored that rebates, where exporters are refunded part of the VAT they pay to the government, may be removed. This would likely target boron-added steel affecting mainly hot rolled coil and long products. According to a source at a major northern China-based mill, boron-added HRC and long products account for half of China's total steel exports. The source also said that these would be affected significantly in the first few months following any rebate cancellation.
His view was echoed by a southern China-based trader, who said that some exporters were not accepting orders to be shipped early next year due to the potential risk of not being able to claim a VAT rebate on them. However an eastern China-based trader said mills might be able to evade the removal of export rebates on boron products by replacing boron with chrome, adding that some mills had already adopted this strategy this year.
Rumors that China might remove export rebates on boron-added products started as long ago as January 2013 when the MOF added two new 8-digit HS codes for boron-added wire rod and bar. The talk increased when another HS code was created for boron-added hot rolled coil effective from January 1, 2014.