China's VAT reduction lowers prices for imported cars and electronics

May 10, 2018

A reduction of 1% in China's VAT (value-added tax) rate came into effect on May 1 causing the prices of many products to immediately drop.

 

China's VAT adjustment lowers the general tax rate applied to manufacturing and related industries from 17 percent to 16 percent, according to a post on the website of the Ministry of Finance, citing a cabinet meeting.

 

As the VAT rate for retail gasoline and diesel has been lowered, the ceiling retail prices for gasoline and diesel came down by 75 yuan (US $11.84) and 65 yuan (US $10.26) per ton.

 

Products in the Chinese Apple Store also dropped in price by about 1% on 1 May 2018. For instance 36kr.com noted that the price of Apple’s flagship iPhone X has dropped from 8,388 yuan to 8,317 yuan.

Automotive companies have also quickly responded to the VAT cuts. On the same day, Mercedes-Benz announced it had lowered the suggested retail pricesfor several models, with price cuts of between 1,000 to 2,000 yuan (US $158 to $316). Its premium Mercedes AMG models could see price cuts of as much as 32,000 yuan (US $5,056).

 

The tax rate adjustment follows a government report by Chinese Premier Li Keqiang in March which promised to lighten the tax burden for businesses and consumers in China with a focus on the manufacturing and transport industries. The government has planned to implement 800 billion yuan ($126 billion) in tax reductions this year.

 

Reference: The Chinese Value Added Tax regime is one of the most progressive and broadest consumption tax regimes in the world. Many goods and services are subject to a 16 % VAT, but there are four rates in total, as well as a nil-rating. While reforming its scope, Chinese VAT remains complex, and the returns are among the most challenging in the world to fully complete.

 

VAT was first introduced into China in 1984. It is administered by the State Administration of Taxation, with local bureaus being responsible for collection.

 

Source: Tencent Finance

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