New Regulations: VAT Reduction

Sunday, July 9, 2006 10:23
Introduction:
The central government has just released new regulations that will change the amount of VAT rebate available for certain products.   

Most likely is as a result of pressure to change the RMB, this reduction wilt have focused impact on trade as U.S. companies looking to export low margin items may reconsider China.

Politically, this measure will reduce the political pressure from Washington to change through an increase in costs for light industry goods, and the resulting reduction in trade, should prove to be a solution that balances the needs on both sides of the pond.

Economically, goods that fall under the new guidelines will effectively become 2% more expensive and thus manufacturers looking to source low end components from China may find savings significantly reduced.

Implications:
1) For light industry and steel goods exported, prices will increase 2% across the board as the cost of goods sold has effectively increased 2%

2) Companies that have yet to move production to China, may no longer find the gains of manufacturing in China as attractive as before, and thus may reconsider outsourcing to China.

3) Companies that have recently moved to China may find that cost savings of moving to China have been significantly reduced.

Please check back for updates. As the attached is not the formal regulation but a notice, the actual guidelines and products affected may be different or may change before implementation.

 

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One Response to “New Regulations: VAT Reduction”

  1. All Roads Lead To China » Update: VAT Rebate Scheme to Change says:

    September 19th, 2006 at 2:35 am

    […] Following our post on July 9 (New Regulations: VAT Reduction), we have received the following file detailing the effect the new VAT scheme will have. […]

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