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Textile industry to benefit from VAT reform

By Yu Hongyan (chinadaily.com.cn)
Updated: 2008-11-11 17:39

The textile industry may see tax relief totaling 16.1 billion yuan ($2.36 billion) next year, according to an industry expert, thanks to the upcoming value-added tax (VAT) reform that to be implemented at the beginning of 2009.

Wang Qianjin, chief editor of webtextiles.com gave his prediction in an interview with the Shanghai Securities News published on Tuesday.

The amount was calculated on the assumption that the investment on fixed assets in the industry maintains a growth rate of 10 percent in 2008, and the investment volume in 2009 is on the same level with that of 2007.

"On the basis of that, textile fixed asset investments next year would come to 280 billion yuan, and with 45 percent of investments subject to tax deductions, the textile industry can see a tax reduction of as much as 16.1 billion yuan in total," explained Wang. "The VAT reform will pull up the net profit and operating cash flow of textile enterprises, and at the same time improve their operating environment, which can be an incentive for their technical reform and industry upgrade."

The long discussed VAT reform was officially announced Monday together with other nine measures to boost domestic demand.

The VAT regulation was revised by the State Council in a move to shift the original production-based tax regime to a consumption-based one, which will ease companies' tax burdens on fixed assets expenditure, and will reduce the country's overall tax burden by more than 120 billion yuan next year, according to estimates from the state council.

The VAT rate therefore has been reduced to 3 percent for all small businesses from the original 6 percent for industrial firms and 4 percent for commercial companies.

The reform shed another light on the struggling textile industry, as the government set out to bail it out since the global economic downturn hit China's exports.

China raised tax rebates for certain textile and garment exports on August 1, to make up for the rising costs and in an effort to maintain employment, the government raised tax rebates for 3,486 export items earlier this month, covering major labor-intensive industries including the textile sector.