Impact on Scrap Copper Market from VAT Policy Reform

SHANGHAI, Dec. 16 (CBI China) -- The State Administration of Taxation (SAT) will remove VAT exemption on recycling domestic resources effective 1 January 2009, at which time individuals or enterprises will pay for VAT when selling or recovering domestic scrap copper materials. Part of the new VAT refund policy is that in 2009 only 70% of VAT is refunded, and in 2010, 50% of VAT is refunded.

    CBI contacted domestic scrap copper traders and consumers after the announcement, who believe the Central Government’s move would have little impact on scrap copper prices and relevant enterprises.  

    Scrap copper is already assessed the 17% VAT when imported, so traders importing scrap copper who are already paying VAT are not affected by the new policy.    

    Recyclers of domestic scrap copper are affected by the new policy.  Before the new policy, goods recycled by them were not subject to VAT, and downstream consumers of scrap copper preferred to purchase this copper when possible.  In accordance with the new policy, domestic scrap copper buyers will pay 5.1% VAT in 2009 (payment proportion = 17% x 30%), but in 2010, the proportion of tax will increase to 8.5% (17% x 50%)  In 2011, taxpayers will no longer receive any VAT refund, and will pay the full 17% VAT.  At that time, scrap copper prices (including tax) will likely rise in 2010-2011.

    CBI believes the government’s new policy does not mean all scrap copper transactions will be taxed immediately, as there is still demand for goods without tax.  In the short term, any impact of reform on scrap copper prices will be limited.  This new policy shows the Central Government’s determination to further standardize the scrap copper market, but many aspects are involved in the reform. 

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