China To Cut Export Tax Credits By Average Of 3%

by Mary Swire, Tax-News.com, Hong Kong

15 October 2003

According to a statement released by the Chinese Ministry of Finance on Monday, the government is to lower its export tax rebates by an average of 3%, in changes it says will help correct imbalances in the system and ease funding costs on central government.

The cutbacks in the tax rebates will mainly affect 'old economy' sector goods, whilst tax credit levels will be maintained for electronic and agricultural goods. According to the Finance Ministry statement, under the new system, the cost of the tax credits will also be shared between central and local governments, although outstanding rebates will be the responsibility of Beijing.

The changes will see the export tax credit on clothing, textiles and some electromechanical goods reduced from 17% to 13%, whilst rebates on goods produced by the steel, plastic, chemical and shoe industries will fall from 15% to 13%. Products in the 13% tax credit bracket such as coal and fertilizers will now receive a rebate of 11%, and some metal products will attract an export credit of 5% (down from 8%).

Additionally, tax rebates for some raw materials will be eliminated altogether. This will affect commodities such as crude oil, refined ores, wood, pulp related products and cashmere.

Last week, Chinese economist Lin Yifu called for just such a move whilst addressing an HSBC-sponsored seminar in Beijing, arguing that the export credit system was driving up the level of foreign reserves and putting pressure on the value of the yuan.

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