On 15 November 2024, China’s Ministry of Finance and State Administration of Taxation (“SAT”) published an Announcement on the Adjustment of Export Tax Rebate Policies, which came into effect on 1 December 2024.
The document states that export tax rebates are to be eliminated for aluminium, copper, and chemically modified oils and fats derived from animal, vegetable or microbial sources. Additionally, the rebate rate for batteries, certain non-metallic mineral goods, some refined oil products, and photovoltaic devices will be cut from 13 per cent to 9 per cent.
China’s export tax rebate system was originally designed to address a gap in the country’s VAT framework that had disadvantaged exporters. Under China’s VAT rules, businesses typically offset the VAT paid on purchases incurred during production, procurement, and distribution processes – known as input VAT – against the VAT charged on sales – known as output VAT.
However, exports are zero rated for VAT purposes, meaning no output VAT is levied. This had left exporters unable to recover the input VAT, thereby increasing their financial burden. As a remedial measure, the export rebate scheme was launched, allowing eligible businesses to reclaim some or all of the input VAT incurred.
The elimination or reduction of export tax rebates under the new policy is expected to drive up costs for businesses operating in China’s biofuel and metals sectors. Export-focused enterprises should assess whether their products fall under the remit of the latest adjustments and devise appropriate strategies to mitigate any potential adverse effects.