More than 2,800 product classifications including rubber, steel and carbon will be affected by the reductions, the third change in refund rates since 2005.
China is making these changes to address overwhelming export growth and attempt to manage its trade surplus. Traditionally, export VAT refunds have kept export prices low for tiremakers and tire- and wheel-component suppliers exporting out of China.
According to an Ernst & Young report released June 20, “any change to a VAT refund rate will impact the prices charged on export goods as well as the profitability of exporters.”
Exporting tire and wheel suppliers, as a result, may have to adjust prices further. Just today, in fact, Hankook announced a price increase and cited changing VAT regulations as one of the reasons for the adjustment.
Tire Review will provide additional details about China’s changing VAT regulations in its July issue.