Announcement No. 40 [2021] on Improving VAT Policy for Resources Recycling to Have Little Impact on Local Tax Rebates Enjoyed by Copper Scrap Processing Plants

SHANGHAI, Jan 10 (SMM) - Announcement No. 40 [2021] of the Ministry of Finance and the State Taxation Administration issued on December 31, 2021 requires that in the trading of copper scrap, the cargoes shall be sold with VAT invoices, and the taxes can be paid at a rate of 3%. And the document prohibits the local governments from giving tax rebates to copper scrap recycling companies, which has aroused heated discussions in the copper industry. SMM believes that secondary copper rod and copper billet plants shall not be deemed as the renewable resource recycling enterprises mentioned in the document. And the stipulation in the document that renewable resource recycling enterprises shall not enjoy tax rebates under the local policies will not affect the implementation of the tax rebates to secondary copper rod and copper billet plants by the local governments.

According to SMM’s calculation based on a 3% input tax rate of copper scrap, the tax-inclusive secondary copper rod price of 69,500 yuan/mt and the tax-exclusive bare bright copper price of 64,000 yuan/mt on January 5, the total amount of tax paid by secondary copper rod plants decreases when purchasing bare bright copper with invoices, after factoring in the reduction of input tax from the output tax. This will reduce the tax rebate amount under the refund-upon-collection policy and the local tax rebate amount by 576 yuan/mt and 470 yuan/mt, respectively, meaning that the actual national and local tax rebates enjoyed by the plants will decrease.

Factoring in the deduction of input tax and tax rebate, the actual VAT to be paid by secondary copper rod plants is 2,764 yuan/mt, which is 873 yuan/mt less than during the implementation period of Announcement No. 78 [2021] of the Ministry of Finance and the State Taxation Administration. In this scenario, the profits at secondary copper rod plants can remain unchanged only if the price gains of bare bright copper with 3% VAT invoices do not exceed 873 yuan/mt compared with bright copper without invoices, that is, the fair procurement prices of bare bright copper with 3% VAT invoices stand below 64,873 yuan/mt. In recent years, the production capacity of secondary copper rod and copper billet has continued to expand rapidly. The resulting product similarity and intensified competition have hampered the transmission of costs to the downstream users.

Most of the 3% tax costs are expected to be transmitted to the raw material end. This means that the prices of copper scrap with invoices will be only several hundred yuan/mt higher than copper scrap without invoices as the copper scrap processing plants struggle to preserve their profits and competitive advantage.