[SMM Analysis] State Taxation Administration Clarifies Consumption Tax Boundary for Energy Storage: Battery Clusters Taxed, ESS Not Taxed, Export Tax Rebate Path Further Clarified

On August 27, the Goods and Services Tax Department of the State Taxation Administration issued “Consumption Tax Policy Q&A No. 3”, further clarifying the collection and administration criteria following the September 1 battery consumption tax policy adjustment. For the typical production model of energy storage enterprises, namely “purchasing lithium-ion battery cells externally—assembling battery clusters—integrating electrical, thermal management, fire protection, and control systems—forming energy storage systems”, the latest reply clarifies: battery clusters fall under battery packs as defined in the “Notes on the Scope of Battery Consumption Tax Collection” and are subject to consumption tax; energy storage systems formed through further integration are complete sets of power equipment produced using batteries, are not taxable battery products, and are not required to pay battery consumption tax.

The tax boundary for energy storage consumption tax is basically clear, and battery clusters have become a key tax point

because consumption tax is not calculated uniformly based on the selling price of a complete 5 MWh battery prefabricated cabin, a DC-side system, or even the entire energy storage system including the PCS. What really needs to be determined is the selling price or transferred taxable value of the battery cluster itself, rather than the final transaction price of the energy storage system. This means that, as the policy boundary becomes clear, what enterprises need to focus on subsequently is no longer “whether the battery cabin is a battery”, but how to establish independent pricing, internal transfer value, and related accounting and tax documentation for battery clusters. SMM will continue to track how the taxation of battery clusters is determined in different regions.

The system itself is no longer taxed, but domestic projects still need to bear the upstream battery tax burden

The fact that energy storage systems are explicitly classified as non-taxable products does not mean that domestic energy storage projects are unaffected by consumption tax. What is no longer taxed is the incremental value created after the battery cluster stage in forming energy storage systems; the consumption tax already incurred at the battery cell, PACK, and battery cluster stages will still create real costs and may be passed on to system integrators through upstream quotations.

At present, leading battery enterprises remain relatively clear in their stance on passing on consumption tax costs. Public information shows that EVE has previously notified that, from September 1, relevant domestically sold battery products will include additional consumption tax costs; other battery enterprises in the market have also been gradually renegotiating prices for orders after September.

This willingness to pass on costs is directly related to the current profitability of each segment of the energy storage industry chain. According to an SMM survey, gross margins of some energy storage cell products are currently about 10%-15%. If only a profitability sensitivity calculation is conducted, assuming the 2% additional consumption tax is fully absorbed internally by battery cell enterprises, it would directly erode their existing profit margins. Therefore, in the medium and long term, there is relatively limited room for battery cell enterprises to continue bearing the entire additional tax burden.

Meanwhile, the system integration segment also lacks strong cost absorption capacity. Since the beginning of the year, as battery cell manufacturers and integrators have gradually established raw material price linkage mechanisms, upstream cost changes have been passed through to the integration segment more directly. By contrast, it is more difficult for integrators to pass costs through back-to-back to downstream owners and end customers. As a result, gross margins in China's ESS integration business have narrowed to around 8%-12%. Given relatively limited profit margins in both the battery cell and integration segments, the 2% consumption tax is unlikely to be absorbed by any single segment of the industry chain alone over the long term. Its actual implementation is more likely to take the form of staged pass-through after multiple rounds of bargaining between upstream and downstream segments, rather than a simple one-off 2% price increase to end users.

SMM believes that, in the short term, existing fixed-price orders may still see the additional tax burden shared by battery cell manufacturers, PACK/battery cluster enterprises, and integrators; for new orders signed after September, as the consumption tax gradually becomes a normalized cost, it is more likely to be incorporated into ESS pricing systems.

Export sales and domestic sales have clearly diverged, and the consumption tax no longer constitutes a permanent export cost.

After this latest clarification, the consumption tax treatment for exports needs to be analyzed separately from domestic sales. At the same time, consumption tax refunds (exemptions) and VAT export rebates must be understood as two separate policy frameworks.

For direct exports of taxable batteries such as battery cells, PACKs, and battery clusters, the latest Q&A from the State Taxation Administration clarifies that exports of self-produced taxable batteries that meet relevant conditions are exempt from consumption tax; for taxable batteries purchased or processed on a consignment basis and then directly exported, the consumption tax already levied in the preceding stage may be refunded in accordance with regulations.

For a complete ESS, the product itself has already been clearly defined as not a taxable battery, so there is no issue of levying consumption tax based on “ESS export sales × 2%.”When an ESS is exported, the consumption tax already paid on upstream battery products may be refunded in accordance with regulations. Therefore, for ESS products that complete export and tax refund procedures normally, the battery consumption tax newly imposed on September 1 will in principle not become a permanent export cost. Its impact will be reflected more in the capital tied up during the period from production to export tax refunds and in corporate tax management requirements.

Market Outlook

Going forward, the market needs to closely track three variables: first, how major ESS enterprises determine the taxable value of battery clusters sold independently or transferred internally; second, the actual pass-through of the 2% consumption tax by battery cell enterprises after September 1 and changes in winning bid prices for newly awarded ESS systems; third, the specific filing materials, processing cycle, and cash flow impact of prior-stage consumption tax refunds for ESS exports. As the consumption tax on lithium-ion batteries is further raised to 4% in September 2027, the battery cluster tax calculation and industry chain cost-sharing mechanism formed this year will also become an important basis for energy storage product pricing in the next stage.

SMM Energy Storage Analyst Li Yisha 18017408818