CHINA'S recently introduced value-added tax (VAT) is causing headaches for new foreign ventures, with some rethinking investment entirely.
One American manufacturer said he was not sure if his joint venture would survive the switch to a value-added tax.
He believed the transition phase might cause a working capital crisis that could lead the parent company to decide the cash demands of the China subsidiary were too great.
Under the old system, imported capital goods and raw materials attracted a five per cent tax.
This has risen to 17 per cent under the VAT regime, which was introduced on January 1.
In theory, companies are able to reclaim the tax after the raw materials have been turned into goods and sold - effectively passing on the tax to the consumer.
However, there are still grey areas concerning the tax refund, according to KPMG Peat Marwick tax manager Ayesha MacPherson.