VAT rebates to return as Beijing aids textile and garment exporters

PUBLISHED : Thursday, 10 July, 2008, 12:00am
UPDATED : Friday, 28 October, 2016, 9:17am

Beijing is expected to restore value-added tax rebates on textile and garment exports soon in a surprise move to inject life into the ailing sector.

Various industry sources and tax experts say the mainland is finalising a plan to raise VAT rebates on textiles and garments as much as 4 percentage points to 15 per cent. Generally, exporters are paying a value-added tax of about 17 per cent.

The plan also would increase rebates on viscose fibre - a key raw material in making fabric - as much as 10 percentage points to 15 per cent.

The plan signals a rescue of the country's pillar industry, which is undergoing an unprecedented consolidation exacerbated by a United States-led global economic slowdown, a sinking US dollar and soaring costs of raw materials, labour and crude oil.

Some economists said lifting tax refunds on selective exports could also signal Beijing's loosening grip on fiscal policy that aimed to avert a fall in the mainland's exports growth and export-driven economy.

'It is certainly good news as soon as there are some increases,' said Tommy Lam Chin-ming, who runs a factory in Dongguan producing jackets and coats for US labels. 'We are besieged on all fronts.'

Labour-intensive industries such as garments, fabric and shoes were the leading casualties as more than 10,000 out of 65,000 Hong Kong-owned factories in Guangdong province's processing trade shut over the past year. Plant closures are expected to jump to 20,000 by year-end.

'I don't see any signs that raw material prices, yuan appreciation, labour and environmental costs will drop in the coming months, whereas the US economy is heading into a recession,' Mr Lam said. 'The prospect for the sector is very obscure.'

A year ago, fabric and garments were among 2,268 types of exports whose VAT rebates were cut as China sought to trim its trade surplus and consolidate resources-consuming, energy-inefficient and highly polluting industries. Fabric and garments' VAT refunds were cut 2 percentage points to 11 per cent and viscose fibre, 6 percentage points to 5 per cent.

China International Capital Corp chief economist Ha Jiming estimated last month's export growth had slowed to 20.3 per cent, with imports up 29.3 per cent, narrowing the trade surplus by 5.3 per cent to US$25.5 billion from June last year. Last month's trade figures are due to be released today.

In the first five months of this year, Guangdong's exports of textiles and garments fell an annualised 13.6 per cent to US$12.21 billion, customs data showed. Nationally, the industry maintained its export growth at 15.4 per cent, to US$66.13 billion.

KPMG senior partner Peter Kung said the lower the export VAT rebates, the higher exporters' costs. 'Raising the rebate levels will help alleviate exporters' burden,' he said. 'China can afford to raise the rebate rates as its growth in tax income will be way above economic growth.'

Mr Kung expected tax income to soar at least 30 per cent this year to about 6 trillion yuan (HK$6.83 trillion) after a 33.8 per cent rise to 1.51 trillion yuan in the first quarter.