The BLC have sent out the following notice:

The Chinese Ministry of Finance and various other ministries jointly issued a notice on September 14, 2006, announcing the reduction or elimination of tax rebate rates for certain exports with effect from September 15, 2006. A subsequent notice was issued on September 29, making further amendments. At the time of writing full product details are not available but broadly the VAT rebate paid on exports of certain leather materials and products was reduced from 13%, to 11%, 8% or to zero, depending on the individual product.

This is reported to be with the intention to discourage ‘dirty’ industries that pollute the environment and use excessive energy. Certain categories of finished leather products, like splits, are reported to have had the rebate eliminated completely because their production is perceived to be particularly environmentally unfriendly, according to reports. It is also reported that one motivation has been to increase certain export prices in the wake of recent anti-dumping cases against Chinese exports.

There have been some concessions in that Chinese exporters may continue to apply the old VAT refund rates for export contracts which were concluded on or before September 14, 2006, provided the exported goods could be exported and the proper customs export declaration procedures could be completed on or before December 14, 2006. To secure such ‘grandfather’ benefits, Chinese export companies had to register the relevant export contracts with the responsible tax bureaux before September 30, 2006. The new VAT refund rates will apply if the Chinese export companies fail to do so.

Some items have also been newly classed as ‘Prohibited Commodities for Processing Trade’. Effectively this means that any products that are ineligible for export VAT refunds are classified as prohibited commodities for bonded processing trade in China. Therefore, customs duty and import VAT will apply on the importation of these products or materials even if intended for export. The same tax treatment will also apply with respect to importation of such products into export processing zones or free trade zones in the PRC.

Copies of the notices (both in Chinese) can be accessed from: