Galvanised HDGI iron sheet in steel coil production tax rate 17 down 16!

According to the Central People's Broadcasting Station news on March 28, the State Council executive meeting determined:

1. From May 1, 2018, the value-added tax rate of the Galvanised HDGI iron sheet in steel coil manufacturing industry and other industries will be reduced from 17% to 16%; the value-added tax rate for goods such as transportation, construction, basic telecommunication services, and agricultural products, etc., will be lowered from 11%. To 10%; the above two measures are expected to have a tax reduction of 240 billion yuan in the whole year.

2. To standardize the value-added tax small-scale taxpayers, and increase the annual sales standards of small-scale taxpayers for industrial enterprises and commercial enterprises from 500,000 yuan and 800,000 yuan to 5 million yuan.

3. The input tax that has not been deducted for a certain period of time shall be refunded once for enterprises and grid companies that meet the requirements of advanced manufacturing industries such as equipment manufacturing, R&D, and other modern service industries. The above measures will reduce the tax burden of enterprises by more than 400 billion yuan throughout the year, and both domestic and foreign-funded enterprises will benefit.

I. The significance of tax reduction policy

The 2018 government work report determined that tax cuts will be made for enterprises and individuals by 800 billion yuan this year. The March 28 tax cuts signified that the government has taken the first step towards realizing the tax reduction targets in the work report. In the future, further tax reduction measures will be introduced. The operating environment of Chinese companies is expected to achieve a fundamental improvement in taxation pressures.

Judging from the specific terms, the significance of this tax reduction is as follows:

1. The development of manufacturing, especially high-end equipment manufacturing, is a big plus. Lowering the VAT rate will reduce the cash flow pressure of manufacturing companies, increase the willingness of enterprises to expand the scale and improve technology, promote the development of enterprises and transform and upgrade the industrial structure, and provide endogenous driving force for the realization of the “Made in China 2025” strategic goal.

2. Upgrading the standard line of small-scale taxpayers and refunding the VAT input tax that has not been deducted in certain industries will reduce the burden on small and micro enterprises and start-up companies in related industries, and increase the funds used by enterprises for innovation and R&D technology in disguised form. It will help promote the pace of innovation and technological progress in Chinese companies.

3. The one-off refund of input tax that has not been deducted for a certain period of time by some enterprises will help improve the living environment of some enterprises and industries that currently have a low income level and cannot offset the input tax, and will release enterprises to a certain degree. Technology research and development or expansion of funds to help these companies through the bottleneck of development.

4. The tax cuts benefit both domestic and foreign-funded enterprises. Therefore, tax cuts may attract more foreign-funded enterprises to start business in China in the future, and increase the vitality and competitiveness of related industries.

II. Direct and indirect effects on the steel industry

Since VAT is turnover tax, and the tax amount is not included in the cost, the direct impact of the VAT reduction on the steel industry lies in the release of certain operating cash flow. However, the estimated results show that the release rate may be minimal.

According to the data from the National Bureau of Statistics, in 2017, the ferrous metal smelting and rolling processing industry achieved a total revenue of RMB 672.926 billion from its main business, resulting in a main business cost of RMB 604.374 billion. Since the cost of raw materials purchased by the steel industry accounts for about 70% of the cost of the main business, it is estimated that the value-added tax after deducting the steel industry at the 17% tax rate is approximately 427.1 billion yuan per year, accounting for 6.3% of the main business income. . If the tax rate drops to 16%, the deducted VAT tax will be about 402 billion yuan per year. To sum up, the tax reduction policy is expected to reduce the value-added tax for the steel industry by about RMB 25.1 billion per year, accounting for 0.37% of the main business revenue in 2017, which has a smaller direct impact. If in the future the steel industry’s income will shrink as a result of falling steel prices, the effect of tax reduction will be further reduced.

The impact of tax cuts on the steel industry may lie in the indirect effects of the stimulus to downstream industries. First of all, it is estimated that the more upstream and downstream manufacturing industries will endure higher ratios of VAT to revenue, so lowering the tax rate will also help to free up cash flow from mid-stream and downstream manufacturing companies including automobiles, shipbuilding, and home appliances, and indirectly increase the related companies. The investment momentum is to maintain the growth of manufacturing investment, so the demand for steel from fixed assets investment may increase.

In addition, the tax reform will be targeted to improve the development environment of high-end manufacturing and emerging manufacturing industries, and these industries have higher quality requirements for steel products than traditional manufacturing, so the growth in demand for high-quality products will be expected to force steel to The company will improve its production process and promote the industrial restructuring and transformation of the steel industry.

Finally, the reduction of taxes in the long run will help achieve the strategic goal of “Made in China 2025”, which will bring certain long-term development opportunities for the steel industry.