Beijing lifts tax rebate for textile exports

PUBLISHED : Friday, 01 August, 2008, 12:00am
UPDATED : Friday, 01 August, 2008, 12:00am

Beijing has reinstated value-added tax rebates for textile and garment exports in its first move to help manufacturers being hammered by rising costs and a strengthening yuan.

Ending weeks of speculation, the State Administration of Taxation announced yesterday that the VAT rebate for textiles and garments would be raised by 2 percentage points on average to 13 per cent starting from today.

Exporters are generally paying a VAT of 17 per cent.

However, many exporters say a higher rebate will do little to help their shrinking profits, as it is a token gesture to show that state leaders acknowledge exporters' woes and rising unemployment.

The new policy is fuelling exporters' expectations that increased VAT rebates will be extended to other labour-intensive industries such as toys and shoes.

'We welcome the move, which means Chinese policymakers realise the need to adjust the processing trade policies they rolled out in the past year,' Federation of Hong Kong Industries chairman Clement Chen Cheng-jen said.

'However, our biggest headache is (yuan) appreciation, which has gained so much and impacted us so broadly that we hope they will slow the pace of appreciation.'

The yuan gained 6.6 per cent in the first half of this year, and its strength was one of several factors forcing more than 10,000 out of 65,000 Hong Kong-owned processing factories in Guangdong to close.

The Ministry of Commerce has reportedly proposed to the State Council that the yuan's appreciation be slowed in the second half to help exporters.

Many exporters say the higher VAT rebate will achieve little because it is based on the amount they spend on raw materials alone and excludes other costs such as fuel, labour and environmental protection.

The rebates will not offset the impact of rising oil prices, electricity tariffs, wages and emission control charges, according to David Hui, the chairman of bedding product maker A-Fontane Group.

Even after the new VAT rebate, textile and garment exporters still had to swallow a 4 per cent VAT and the yuan's growing value further inflated their costs, he said.

'While the rebate increase is welcome, manufacturers would have a better chance of surviving if the VAT rebate level was lifted above 15 per cent and the yuan depreciates,' he said.

Meanwhile, the taxation administration also scrapped VAT rebates on 35 types of export products ranging from chemicals to batteries starting from today.

Some help

Higher rebate a token gesture to acknowledge exporters' woes

The rebate for textiles and garments will increase 2 percentage points to: 13%



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