On December 9, 2008, the Ministry of Finance (MOF) and the State Administration for Taxation (SAT) jointly promulgated the Circular on Value-Added Tax Policies for Renewable Resources, Cai Shui (2008) 157, the Circular). The Circular came into effect on January 1, 2009.
The Circular abrogates the following two preferential policies:
- The exemption from value-added tax (VAT) on sale of reclaimed worn-out goods by enterprises whose business is reclaiming such goods; and
- The input VAT credit for a manufacturer that is a regular VAT taxpayer on its purchase of worn-out goods (equal to 10 percent of the purchase price, as evidenced by the invoice issued by the operator of the worn-out goods).
Aside from individuals (excluding those who are self-employed), who may still enjoy the VAT exemption when selling goods that they themselves have used, all entities are subject to VAT laws, egulations and circulars when selling renewable resources and must pay the applicable VAT. The use of special invoices marked with “worn-out goods” has been discontinued.
Under the Circular, from the beginning of 2009 to the end of 2010, qualified regular VAT taxpayers are entitled to the preferential VAT policy of “first-levy-then-refund” when selling renewable resources. The Circular follows the Measures for the Administration of the Reclaiming of Renewable Resources, the Measures) by defining “renewable resources” as various discarded materials, generated from social production and living, that wholly or partially lose their original use value but then obtain new use value through certain reclaiming and processing procedures. Such procedures only include simple processes such as cleaning out, culling, polishing, and alike.
In order to enjoy such preferential treatment, taxpayers must:
- file with the competent government agency if required to do so by the Measures;
- have fixed places to store, clean and process renewable resources;
- settle through financial institutions no less than 80 percent of the sales amount generated from selling renewable resources; and
- not, since January 1, 2007, have been subject to any administrative penalties (excluding warnings and fines) imposed by the industry and commerce authorities, commerce authorities, environmental authorities, taxation authorities or public security authorities above the county level, or any criminal punishment, due to any violations of the PRC Anti- Money Laundering Law the Environmental Protection Law, the Tax Collection and Administration Law, the Measures for the Administration of Invoices or the Measures.
According to the “first-levy-then-refund” principle, the refund rate will be 70 percent in 2009 and 50 percent in 2010. For example, if a qualified taxpayer pays VAT in an amount of RMB 1 million for its sale of renewable resources in 2009, it will receive a VAT refund equal to RMB 700,000. And if the taxpayer pays VAT in an amount of RMB 1 million for its sale of renewable resources in 2010, it will receive a VAT refund equal to RMB 500,000. Qualified taxpayers must apply to the competent finance authorities for the VAT refund according to the procedure set forth in the Circular. Under most circumstances, qualified taxpayers should apply on a quarterly basis, though they may apply monthly if the size of the claimed VAT refund is particularly large.
This Circular also applies to enterprises engaged in dismantling out-of-service motor vehicles and/or ships.