Beijing may bring steel tax breaks back to life

PUBLISHED : Wednesday, 01 August, 2012, 12:00am
UPDATED : Wednesday, 15 August, 2012, 10:47pm


Beijing is mulling moves to revive an old policy exempting high-end steel sold to manufacturers of export products from a 17 per cent value-added tax, in an effort to help the steel industry reeling from widespread losses.

But analysts said the proposed policy would be difficult to implement and likely have a limited impact on the steel industry since mainland-made steel-intensive products such as ships and cars were mostly for domestic consumption.

The Ministry of Industry and Information Technology was considering a plan to slash or exempt the tax on steel used in export products to encourage users to replace steel imports with domestic products, the Shanghai Securities News reported yesterday, citing a person close to the ministry.

The plan is for the exemptions to initially apply to shipbuilding steel and silicon steel, which has added silicon to increase its electrical resistance so it can be used in transformers and electrical motors. Other products considered for the exemption include oil-pipe and electroplated steel.

The policy was first implemented in 1998, when the mainland imported most of the high-end steel it needed because domestic mills could not produce it. The exemptions were abolished in 2005, when the mainland stopped encouraging steel exports, after a rapid ramp-up in steel output resulted in soaring imports and prices of iron ore.

Mirae Asset Securities regional head of commodities research Henry Liu Xiaoning said a tax exemption would be outdated in today's market and tough to execute.

'This proposal looks to be in the early stages of deliberation. Many in the steel industry are lobbying Beijing for policies, but policymakers should be smart enough to know the troubles may outweigh the benefits,' he said. 'This seems like a desperate attempt to find some policy to help the industry.'

He said the 1998 policy only gave exemptions to select steel mills, and it would be unfair to apply the same principle again. It was also difficult to determine and ensure that steel sold on a tax-exempted basis was used only in export products, he added.

In addition, the policy could attract criticism from other steelexporting countries on grounds it was an unfair trade practice. Mainland exports of some steel products to the US already face anti-dumping duties. Many of the mainland's state-owned steel mills have suffered losses in the past year, but many small, private mills have been doing well due to better management.