Beijing to raise VAT rebates for more export categories
Beijing is to raise value-added tax rebates for a wider range of exports next week in its latest move to stem tumbling trade.
Premier Wen Jiabao yesterday gave the approval to a fresh round of increases in VAT rebates for labour-intensive industries such as textiles, light industries, steel, non-ferrous metals, petrochemicals and information-technology products, Xinhua reported.
The tax incentive will take effect on April 1.
Hong Kong exporters based across the border widely welcomed the move, which will effectively lower their costs and ease their cash-flow problems.
It will be the fifth round of increases since August last year, as a recession in the United States, the European Union and Japan, the three largest buyers of Chinese-made goods, sent mainland exports tumbling.
'It is certainly good news,' said Danny Tam, the managing director of Hing Cheong Metals, which trades and processes non-ferrous metals in its factory in Dongguan. 'It will improve our competitiveness.'
Mr Tam pointed out that the tax incentive would help reduce the company's cost burden, as there was no VAT refund on copper exports and the tax stood at 17 per cent.
'The mainland used not to encourage exports of non-ferrous metals, such as copper and lead, but the new rebate shows it has changed its mind and the export situation is dire,' Mr Tam said. 'No matter what the percentage of the rebate is, it is better than none.'
Some exporters of non-ferrous metals said the new tax rebate could not have come at a better time, as overseas buyers put off shipments meant for the fourth quarter last year until the first quarter of this year, effectively halting new orders during the spring period.
Some economists expect VAT rebates on textile exports will be raised to 17 per cent, which means these products would be VAT-free. Refunds on textile exports average 14 per cent compared with 17 per cent VAT.
Refunding VAT for exports is seen as a potent measure to rescue China's external trade, as Mr Wen promised earlier this month that 'the country must not loosen its grip on exports' as a key task of the State Council this year.
He also hailed seven ways to rescue the country's foreign trade.
Exports fell 25.7 per cent year on year last month, the sharpest on record, and imports slid 24.1 per cent.
Last month's export figures marked the fourth consecutive monthly decline and the steepest fall since records were first made available in 1993.
UBS economist Wang Tao, who downgraded her forecast for mainland exports to a 4.5 per cent fall this year from a 2 per cent drop previously, said economic declines at China's trading partners would prevail.
She saw sustained overseas demand for traditional mainland products such as textiles, garments and shoes on the back of a smaller than expected fall in last month's exports.