China assesses a Value Added Tax (VAT) on nearly all of its products. This tax is typically 17%. Up until July 1, 2007, China would rebate some or all of its Value Added Tax (VAT) on nearly all export products. China did this to encourage the production of products for export.
However, on July 1, China cancelled its Value Added Tax (VAT) rebates on 500+ products, reduced its VAT rebates on another 2,000+ products and exempted VAT charges on about 10 products. These changes mean the sourcing costs on many products from China have just gone up by as much as 17%.
Very briefly, the Chinese government is using VAT rebates to discourage manufacturing of low-end, high energy consumption, high polluting goods and to encourage the export of high value added, high end goods. Certain high tech products, bio-medical products and highly processed agricultural products actually had their rebates increased.
As one might expect, the Big Four Accounting Firms Click here [link no longer exists] for PriceWaterhouse’s take and here [link no longer exists] for Ernst & Young’s.
The Western media has been surprisingly quiet on this whole thing and corporate America has also said very little. Is it because Western companies will be so little affected by the changes? Is it because the changes came so quickly and with so little warning Western companies have had too little time to react?
What do you think?