Categorized | China, Tax

China’s recent use of the VAT as a trade weapon

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The biggest trade problem we have may be the foreign VAT system.  Most countries tax our exports through value added taxes (VAT) averaging 17%, which is separate from tariffs.  They also subsidize their exports to us through VAT rebates.  Here is a CPA primer on the VAT issue.

China is the most aggressive, changing their VAT charges on imports monthly, and changing their VAT subsidies on exports almost monthly.  See a CPA report showing (a) how China uses VATs to subsidize their exports; and (b) how Americans pay massive Chinese taxes when we sell to them.

China’s steel industry sales (the Communist Party of China owns the steel industry) have suffered, and so they are upping the VAT rebates to subsidize more exports.  The office of the U.S. Trade Representative does nothing.

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China Considers Resuming Tax Rebates for Steelmakers: News
2012-07-30 23:20:02.509 GMT

By Bloomberg News
July 31 (Bloomberg) — The Ministry of Industry and
Information Technology is considering giving a 17% value-added
tax rebate to domestic steelmakers that supply steel for export
products, Shanghai Securities News reports today, citing an
unidentified person close the ministry.
* The tax rebate policy, first introduced in 1998 to help
promote domestic steel products, was cancelled in 2005,
according to the newspaper
* Steelmakers supplying silicon steel and ship plates may be
the first to get the rebate, according to the report

2 Responses to “China’s recent use of the VAT as a trade weapon”

  1. Frank Shannon says:

    In practice, Value Added Taxes (VAT) are just tariffs on imports. Wise up America. Quit arguing about how much or little we are taxed. The real debate should be about how we collect them.

  2. China Watcher says:

    One reason why China feels free to monkey with the VAT rebates if the certainty that when their exports arrive at US ports, no additional tax will be levied. If we had our own consumption tax in place, Chinese exporters would be hurt far more by elimination or reduction of China’s tax rebate.

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