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30% Tax Rebate! The Impact Trend Of The New Deal On Scrap Trade

Mar 03, 2022

30% tax rebate! The impact trend of the New Deal on scrap trade

March 1 is the date for the official implementation of the much-watched Announcement on Improving the Value-Added Tax Policy for Comprehensive Utilization of Resources (Announcement No. 40 [2021] of the Ministry of Finance and State Administration of Taxation). 

Compared with the past, the new policy not only makes the transaction must be invoiced to become the trend of scrap steel trade but also has been adjusted in the following aspects:

1. Added the choice of taxpayer's tax calculation method for recycling of renewable resources

General VAT taxpayers engaged in the recycling of renewable resources can choose to apply the simple tax calculation method to calculate and pay the value-added tax at the rate of 3% or apply the general tax calculation method to calculate and pay the value-added tax.

2. It is stipulated that those who violate the laws of financial returns and rewards will be held accountable

Finances, competent departments, and their staff at all levels who violate laws and regulations and give taxpayers engaged in renewable resource recycling business financial rebates, rewards, and subsidies, shall be investigated for corresponding responsibilities according to law.

3. Tax rebates for comprehensive utilization of resources need to be purchased with tickets

The "Announcement" has specific requirements for invoices related to the recycling of renewable resources. Except for natural persons who cannot meet the threshold, they must bring tickets, and those who are exempt from tax must also issue ordinary invoices. 

Self-made vouchers will become a thing of the past. In addition, it is required to establish a renewable resource purchase ledger and keep it for future reference.

In addition, the "Announcement" also added a new qualification review for tax rebates to ensure that policy dividend really benefit-eligible companies. 

These include: First, legal certificates should be obtained for the acquisition of renewable resources. If legal certificates are not obtained as required, no tax refund shall be allowed for this part of the sales revenue; second, the acquisition ledger should be established, and detailed requirements for the contents of the ledger should be established to promote renewable resources recycling enterprises. 

Comprehensive collection and recording of information on the acquisition of renewable resources provide a basis for tax authorities to verify the authenticity of corporate business through follow-up management.

Under the tax reform policy, what will be the price of scrap steel?

It is worth mentioning that scrap steel processing access enterprises can require suppliers to set up recycling companies to supply goods with tickets, or set up recycling companies to receive goods from suppliers, and require suppliers to take the goods as individual industrial and commercial households or small-scale taxpayers. 

Tickets are supplied to the recycling company. The recycling company chooses the simple tax calculation method and sells 3% of the tickets to the access companies, and the access companies issue another 13% of the invoices to the steel mills on the standard list, and the tax rebate is 30%. Said that the benefit of most of the tax rebates can be enjoyed through price adjustment and maybe the choice of most steel mills.

For scrap steel practitioners, after the New Deal, the transaction must be billed, which will inevitably increase the cost, and there are two paths for the transfer of the cost increase. One is to increase the price to let the downstream profit and waste party bear the cost increase, and the other is the steel mill that raises the tax point, and the final increase in cost is taken over by scrap steel recycling. 

Therefore, for enterprises, the change of the scrap steel tax reform policy will have a direct impact on the production cost of the scrap steel industry chain.

However, from the current point of view, many suppliers and steel mills take a wait-and-see attitude. At present, the market operation is different. Some scrap steel sites are actively shipping to reduce inventory, and some sites are not actively shipping. 

At present, the new fiscal and taxation policies have just been implemented, and the base still needs to find out the correct operating mode. Therefore, once the arrival of steel mills continues to decrease, the possibility of a rebound cannot be ruled out. It is expected that more shocks will be adjusted in the short term.