VAT rise to strike exporters
Foreign-invested enterprises (FIEs), which import raw ma terials for exports, will suffer an increase in value-added tax (VAT) from January 1, raising their mainland production costs.
PricewaterhouseCoopers tax services partner Edward Shum said FIEs which were engaged in 'import processing' - importing raw materials and exporting finished products on their own account - would be hard hit, after the State Administration of Taxation (SAT) issued a circular in July which enforced the collection.
Those involved in 'contract processing' - or manufacturing finished goods for clients who import their own raw materials - would be unaffected.
Mr Shum said 'import processing' FIEs would have to cope with a VAT of 8 per cent of the value which has been added to exported goods, depending on the proportion of imported materials and the proportion of finished products actually exported.
Mr Shum said most factories in the Pearl River delta were engaged in 'contract processing', and the impact of the new measure would be limited.