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A 17% rebate to offset value added tax (VAT) is being proposed for Chinese steel mills that sell such high-end steel products to domestic manufacturers that then use those products to manufacture goods for exporting, market sources said.
“We are just trying to help domestic steel mills by creating an equal chance for them to compete with overseas producers.
“This is because many of the overseas producers are exporting to China for toll processing, which means they do not need to pay any tax, while Chinese steel mills need to pay a 17% VAT tax when selling to domestic customers,” a senior official from Cisa told Metal Bulletin.
In 2011, some 7-8 million tonnes out of the 15 million tonnes of steel imports were for toll processing. Manufacturers did not need to pay any tax when importing these products from overseas producers and then exporting them as finished products, the official said.
China had implemented a rebate policy from 1998 to 2005 to encourage manufacturers to feed on domestically produced steel products more, because at the time, the country depended a lot on imported steel products.
Now Cisa is trying to persuade the government to revive the policy to create more demand for Chinese steelmakers, even though it might just be of little help.
“This will have a very small impact on domestic demand, since 7-8 million tonnes are a small volume and most of them are high-end steel products,” a steel analyst at a securities company in Shanghai said.
But since Chinese steel mills are all having difficulties in making profits due to the sluggish domestic steel demand, Cisa, as the official association of Chinese steel mills, is attempting whatever it can to help them.
According to Cisa, its 74 members’ gross profits totalled only 2.385 billion yuan ($377 million) in the first half of 2012, down 95.81% against the same period last year.