SHANGHAI, Jul. 28 (SMM) – A large number of copper rod plants, using copper scrap as raw matrial, have suspended production in Jiangxi and Anhui due to fake VAT invoices, Shanghai Metals Market learns. 

Let’s review tax policy on copper scrap in China first. 

China stopped levying VAT on copper scrap sales at domestic recyclers from 2001; China’s State Administration of Taxation announced December 2008 to cancel VAT exemption policy on renewable resources from January 1, 2009, and China introduced the policy of collection before refund on renewable resources in 2009-2010. According to the policy, 70% of the VAT will be refunded in 2009, and in 2010, the refund proportion will fall to 50%. On December 27, 2010, China’s Finance Ministry announced to remove the VAT refund policy for copper scrap; on June 26, 2015, China’s Finance Ministry and State Administration of Taxation jointly released the Notice of Catalogue of Value-Added Tax Preferences for Products and Labor Services Involving the Comprehensive Utilization of Resources, giving a 30% VAT refund to secondary copper producers. 

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The tax burden for renewable enterprises vary from region to region due to different preferential policies by each local government which will further refund local producers after a proportion sharing (7.5:2.5 before the policy of replacing the business tax with VAT, and 5:5 after policy) between central and local governments following the tax refund policy introduced in 2015. 

Among regions, Jiangxi and Anhui have carried out the most preferential tax refund policy for local enterprises, SMM learns. In Jiangxi, copper processing enterprises only need to pay about 6.5 per cent of the VAT. 

The preferential tax policy, coupled with shifting of orders after stringent environmental protection inspections in Guangdong and Tianjin, have significantly increased the number of copper rod makers with copper scrap as raw material in Jiangxi and Anhui, many of which came from other provinces. 

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According to SMM sources, a total of 30 reverberatory furnaces are commissioned in Jiangxi in 2017, with capacity about 5,000 tonnes for each, bringing nearly 150,000 tonnes of capacities on line. The number of copper rod makers coming from Anhui and Jiangxi to source copper scrap in Guangdong is greater many times over than that seen in past years. 

As most of copper scrap available in the market is without VAT invoice, enterprises need to buy the invoice for tax deduction, and false invoices grew significantly. In June 2017, Anhui’s Taxation Bureau announced the Notice of Further Strengthening Tax Management on Renewable Resources, to crackdown false invoices. Jiangxi’s Taxation Bureau also took action and announced July 13 to remove tax preferential policy for those which use copper scrap without VAT. Following those measures, a large amount of small and medium copper rod makers using copper scrap as raw material have closed in Anhui, and some producers in Jiangxi also chose to stay on the sidelines due to growing tax burden, with some suspending on-hand projects. Large copper rod makers with copper scrap as raw material, however, have been little affected by those policies. 

In other news, sales of copper scrap at private recycling yards in Jiangsu and Zhejiang are sluggish as they are no eligible for issuing invoices. To boost sales, those yards lowered copper scrap prices, but generated little market response. Copper rod producers with copper scrap as raw material have increased demand for goods with VAT and imported copper scrap, and purchasing cost for VAT invoice grew from 8% in June to 8.5-9% of a 17% VAT. 

SMM survey also finds that orders at large copper rod producers in Henan and Hebei have increased along with the closures of SMEs producers in Anhui. Those producers chose to increase the using proportion of refined copper and copper scrap with VAT, but orders at SMEs producers remained poor. 

In the short term, supply of copper scrap with VAT will be tighter for the foreseeable future, with higher purchasing cost, and in the long run, the scrap copper rod industry will experience a reshuffle, and this will standardize the development across the industry and also enhance recycling management of copper scrap and recycling economy in China as well. 

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