China: Tax Rebates Cut acts on Leather Industry

"There has been a lot of talk about tax rebate cuts since June, so most manufacturers are operating at full capacity, hoping to export as much as possible before the deadline," said Zhang Wei, assistant to the general manager of Zhejiang Grand Import and Export Co. China has slashed tax rebates on exports of 2,831 types of products as from July 1, 2007, it is part of a two-pronged effort to reduce trade friction with other countries and to improve energy efficiency in a range of industries.

The latest cuts, which involve about 37% of items listed in customs tax regulations, is the second such move since May 21, when the tax bureau announced export taxes would be increased on 142 products and import tariffs cut on 209 types of goods, from June 1, to help curb the growing trade surplus.

The initial reaction from financial analysts was to welcome the move generally but express reservations as to whether it would make much difference to China's trade surplus, especially with the US. Nothing, short of a (substantial) upward revaluation of the Yuan, would materially affect the imbalance. In May China's trade surplus hit US$22.45 billion, up 73% from a year earlier. In the first five months of 2007 the trade surplus surged 83% compared to a year earlier, standing at US$85.7 billion.

Typical refund rates:

Category

Previous refund rate

New refund rate

Leather goods

13%

5%

Footwear

13%

9%

Tanning or dyeing extracts & dyes

Between 13 – 5%

Zero

Raw Hides & Skins

8%

Zero

Fur skins

13%

5%