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. ''The Government was very quick to pass and implement the law but very slow to clear up areas like how to claim a rebate,'' she said. As a result, companies are left in a position where it is impossible to make accurate cash-flow projections because there is no way of knowing when the rebate will be paid. ''The mainland authorities have said that a refund will be made, but they have not given any details,'' Ms MacPherson said. Another grey area is how the transition from the old tax system to the new is handled. Ms MacPherson said there was confusion for companies which had paid tax on their raw materials under the old system but would sell the finished goods under the new tax regime. Price Waterhouse senior tax manager Peter Kung said: ''Potentially VAT is recoverable, but to some foreign businesses just starting in China, the effects can be quite serious. ''They will need a few months to set up and start production, so it may take several months before they can recover the tax.''