China's Unusual Tax Move


January 9, 2007


The Chinese government's control policies are currently focused on controlling exports by increasing export taxes, said Patrick McCormick, World Steel Dynamics (WSD) managing partner. Normally, a value-added tax (VAT) is refunded on exports.

"Because of the growth of steel, and because they're trying to curb pollution and avoid exporting low-value products that consume limited energy resources within China, they're taxing low-value exports now by reducing the recovery of the VAT," McCormick said. Steel slab exports no longer recover any VAT, so they are taxed at 17 percent, plus an additional 10 percent tax was levied midyear. On finished steel products (cold-rolled, hot-rolled), the VAT recovery was reduced to 8 percent, and that may soon be reduced to 5 percent," he said.

"So, in essence, they are taxing slab at 27 percent, and they'll be taxing finished steel product exports at 12 percent."

McCormick said he believes the unusual taxation is an offset move. "It's my opinion that China's taxation on steel exports is to avoid being more aggressive on changing their exchange rate," McCormick said. "They are using an atypical policy on taxing steel exports to try to show 'I'm a good world trader,' which may take a little heat off the currency issue."

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