Call Your Accountant QUICK! VAT is going DOWN

Wednesday, June 13, 2007 0:05

One of the nice things about being a consultant that also manufacturers is that we are privy to all the supplier gossip.

and in a first for All Roads… we have beaten out ALL news outlets in reporting this (Now, I only hope we are NOT wrong)

We hear about bankers driving up the price of metals (PLEASE STOP!!), we hear about power shortages, and … we also get the government notices.

For the last few weeks, everyone from our forwarder to our Aluminum supplier to the box guy were telling us that it was possible that our category of products may see a reduction in VAT rebates.

Well, apparently we are not the only ones (See excel spreadsheet).

If you are a manufacturer or are buying ANYTHING in China, call your accountant now because not only is the VAT going down for hand tools… it is going down for nearly every category of product that China exports.


and that means that in 2 weeks, your goods are about to get a lot more expensive!

For years, this was one of the tools that the U.S. congress has taken issue with and last year the first reduction was made. To reduce VAT is in my mind a more effective tool of not only limiting exports, but also moving China from the bottom end of manufacturing into the middle and high end categories.

My guess is that this time next year, VAT will be a thing of the past and that at that point, the cost of goods sold (assume the RMB stays the same) will have increased 25%+ for many operating here.

That should keep congress quiet for a while.

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5 Responses to “Call Your Accountant QUICK! VAT is going DOWN”

  1. Tom - Daai Tou Lam says:

    June 13th, 2007 at 1:48 am

    I assume you mean the VAT charged from one internal supplier to another is not going down, but the rebate for exporting the items for which VAT has already been paid are going down.

    The VAT rebate was a huge encouragement to export items rather than produce for the domestic market. Though I am not a fan of the high VAT, which discourages domestic sourcing in favour of having the supply chain all brought in house.

  2. rbrubaker says:

    June 13th, 2007 at 4:54 am

    HI Tom,

    Correct, it is the VAT rebate going down…. and personally (since we are managing some metals) I enjoy the high structure.

    However, long term, I take your view and think that it will be good for the local industry. However, short term it could present an issue as the COGS is going up 8% ~ 13% for the majority of goods being exported… and in some cases you cannot find the goods in China (we recently gave up on finding a particular glue after searching for 3 months… and will import)

    And while we are speaking to several accountants,there are still a number of questions, and It will be very interesting how this will change dynamics in implemented as announced:

    One of the most critical questions we have (and are getting multiple answers for), is if July 1 is the date of implementation, how will that affect goods ordered before that date … but shipped afterwards…There are surely some big orders on the books, and a lot of people stand to lose a lot of money if they are only able to receive the new VAT.

  3. rbrubaker says:

    June 18th, 2007 at 1:47 am

    A quick update. We are still hearing from our suppliers that this is going into effect, however there has been no official announcement.

    regardless, a lot of boats are being book before July 1 so that everyone can claim their VAT receipt.

    I am not 100% sure that this will pass in 13 days, but the writing is on the wall.

    If your HS code is one that is affected, I highly suggest you speak to your accountant to see what your options are. We found a way to mitigate much of the impact on our products, but different products will have different solutions

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