2009 Policy Shifts in China's Printing & Packaging Sector: Tax, VAT, Investment and Green Compliance

1. Unified Corporate Income Tax Rules: Effective January 1, 2008, China's Corporate Income Tax Law and its implementing regulations took effect. Industry analysts identified seven benefits for printing and equipment manufacturing: a single 25% income tax rate for domestic and foreign-invested companies; deduction of reasonable salary and wage costs; a unified and higher deduction for advertising and business promotion expenses; a reduced 20% rate for eligible small low-profit enterprises; a reduced 15% rate for high-tech enterprises; possible tax relief or exemption for environmentally sound, resource-efficient printing companies; and multiple incentives for technological innovation. The unified law was seen as a milestone in China's tax rule-of-law development and an institutional arrangement aligned with the socialist market economy. It was expected to shape equal tax burdens for domestic and foreign investors, influence capital flows, support industrial restructuring, promote balanced regional development, and help create a tax environment for fair competition.
2. VAT Deductions for Equipment Purchases: Starting January 1, 2009, all general VAT taxpayers across China, regardless of region or industry, could credit input VAT contained in newly purchased equipment, with any unused credit carried forward to future periods. The printing industry was among the beneficiaries. In November 2008, the State Council executive meeting reviewed and approved in principle the Interim Regulations of the People's Republic of China on Value-Added Tax, deciding to roll out VAT transformation nationwide in 2009. The reform kept existing VAT rates unchanged while allowing all general VAT taxpayers nationwide to deduct input VAT on newly bought equipment, carrying forward any excess. Eligible fixed assets mainly covered machinery, mechanical equipment, transport vehicles, and other production- or operation-related equipment, tools and instruments; real property such as buildings and structures was excluded. As supporting measures, the VAT exemption for imported equipment and the VAT refund for foreign-invested enterprises buying domestically produced equipment, policies that had benefited printing firms, were to be cancelled.
3. Lower Entry Threshold for Hong Kong and Macao Packaging-Printing Investment: From January 1, 2009, Hong Kong and Macao investors setting up packaging and decoration printing enterprises in mainland China had their minimum registered capital requirement aligned with that of mainland enterprises. On July 29 and 30, 2008, the Ministry of Commerce signed Supplementary Agreement V to CEPA with the Hong Kong and Macao SAR governments respectively; both agreements took effect on January 1, 2009. Their annexes set out mainland commitments on printing and publishing services: for Hong Kong and Macao service suppliers establishing printing enterprises engaged in packaging and decoration printed materials on the mainland, the minimum registered capital requirement would follow the mainland standard. Previously, the minimum registered capital for such Hong Kong- and Macao-invested packaging and decoration printing businesses was RMB 10 million; from 2009 they received 'national treatment,' matching the mainland level of RMB 1.5 million. This further lowered the barrier for Hong Kong and Macao capital entering the mainland printing sector and was expected to help attract such investment.
4. Labor Contract Law Raises New Workforce Questions for Printers: The Labor Contract Law places additional emphasis on protecting workers' rights while also considering employers' interests. Printing is labor-intensive, with a complex and highly mobile workforce, making it difficult to bind workers and companies into long-term relationships. As printing moved into an era of thin margins, the law posed a clear employment challenge for printing enterprises. The Labor Contract Law of the People's Republic of China took effect on January 1, 2008. Its main requirements included: written contracts for employment; no more annual-only contracts; no arbitrary liquidated damages; probation periods no longer serving as cheap labor periods; harder procedures for dismissing employees; rules and regulations no longer decided unilaterally; and no using labor dispatch to evade risks. On open-ended contracts, which drew wide attention, the law provided that employers must sign open-ended contracts under specific circumstances: when an employee has worked continuously for the employer for 10 years; or when an employer introduces labor contracts for the first time or re-signs them due to state-owned enterprise restructuring, and the employee has 10 years of continuous service and is less than 10 years from statutory retirement age. In addition, after two consecutive fixed-term contracts, a further renewal would generally also be an open-ended contract.
5. Printing Waste Added to the National Hazardous Waste Catalogue: This policy supports the Law on the Prevention and Control of Environmental Pollution by Solid Waste, which requires units generating hazardous waste to dispose of it in line with national rules. Industry observers considered the policy direction positive, but noted practical difficulties: treating printing waste is costly, and printing companies in a low-margin era often 'have the will but not the strength.' In June 2008, the Ministry of Environmental Protection and the National Development and Reform Commission issued the revised National Catalogue of Hazardous Wastes. It listed 49 categories of hazardous waste from dozens of industries, including printing. The printing sector's main hazardous wastes cover seven types: photosensitive material waste, chromium-containing waste, copper-containing waste, mercury-containing waste, lead-containing waste, waste halogenated organic solvents, and waste organic solvents. These mainly arise from waste developing and fixing solutions, film and waste photographic paper, waste etching solutions and adhesives, printed circuit board manufacturing, waste liquid from lead-tin alloy plating, rubber plate printing with organic solvents, and waste organic solvents from cleaning printing tools.
6. Industrial Revitalization Plans Roll Out: To support the national goal of 8% economic growth, industrial revitalization plans were released one after another after entering 2009. On January 14, the State Council executive meeting approved revitalization plans for steel and automobiles. On February 4, adjustment and revitalization plans for textiles and equipment manufacturing were approved in principle. On February 11, the State Council reviewed and approved in principle the shipbuilding adjustment and revitalization plan. On February 18, the State Council executive meeting reviewed and passed the electronic information industry revitalization plan. On February 19, plans for light industry and petrochemicals were passed. On February 25, plans for non-ferrous metals and logistics were also passed. By then, all industrial adjustment and revitalization plans had been issued, with implementation running from 2009 to 2011.
7. NDRC Sets Eight Energy-Saving and Emission-Reduction Tasks for 2009: Zhang Lijun, Vice Minister of Environmental Protection, said that by the end of last year, national COD (chemical oxygen demand) emissions had fallen 6.61% from 2005, while sulfur dioxide emissions had dropped 8.95%. The Ministry of Environmental Protection stated it would keep pushing energy saving and emission reduction without wavering. The tasks included vigorously upgrading the industrial structure, intensifying key projects, accelerating energy-saving product promotion, advancing the circular economy, developing the energy-saving and environmental protection industry, strengthening performance assessment against targets, and tightening supervision of energy saving and emission reduction. 2009 was a critical year for these eight tasks. Sustained progress was not only vital to meeting the 11th Five-Year Plan's energy-saving and emission-reduction targets and enhancing development sustainability, but also an important step for expanding domestic demand and promoting steady, relatively rapid economic growth. 'Energy saving and emission reduction' was expected to move gradually onto the daily agenda of the printing and packaging industry.
8. Tax Administration Issues Nine Income Tax Policies Affecting Printers: The Ministry of Finance and the State Administration of Taxation issued nine circulars related to the printing industry. Key points included: pre-tax deduction of enterprise asset losses; clarification of transitional income tax incentives; clarification of conditions for income tax relief on technology transfer; accelerated depreciation for certain fixed assets; pre-tax deduction for donations for specific purposes; refined income tax incentives for high-tech enterprises; clarification of tax treatment when overseas Chinese-funded enterprises are recognized as resident enterprises; a 100% additional deduction for wages of disabled employees; and tax benefits for enterprise restructuring. The circulars refined the new Corporate Income Tax Law and its implementing regulations. Except for the fifth circular, the other eight took effect on January 1, 2008, the same date as the new law and its implementing regulations.
9. Green and Eco-Friendly Packaging Receives Policy Support: The Chinese government further increased support for the environmental protection industry. On August 27, 2008, the Ministry of Finance issued the Measures for the Administration of High-Tech R&D Funds for the Packaging Industry. The measures aimed to standardize management of high-tech R&D funds for packaging, support new product development and new technology adoption, and promote the circular economy and green, eco-friendly packaging. From that date, qualifying enterprises could receive up to RMB 5 million in R&D support. Eligible areas included projects meeting relevant level requirements, new eco-friendly packaging material projects that protect human health and safety and meet environmental protection requirements, packaging reduction and energy-saving projects, packaging waste treatment and utilization projects, and other projects aligned with national macro policies, environmental protection and circular economy policies. Support was mainly provided through non-repayable grants and loan interest subsidies.
10. Seven Departments Jointly Clean Up Food Packaging Materials: On December 4, 2009, the Ministry of Health and six other departments jointly issued the Notice on Carrying Out the Clean-up of Food Packaging Materials. It required relevant government departments to mobilize industries and enterprises broadly, and in accordance with the Food Safety Law, clean up food packaging materials on the market that may harm human health. It also called for firm action against illegal acts involving toxic or harmful substances, especially the illegal use of waste and old materials to make food packaging, containers and similar products. The notice published China's current effective standards catalogue for food packaging materials, covering 133 national standards and 126 industry standards. The Ministry of Health, together with relevant departments, formed an expert group to scientifically assess materials submitted by industries and enterprises; based on the results, it would draft the List of Substances Permitted for Use in Food Packaging Materials and the List of Substances Prohibited for Use in Food Packaging Materials, publishing them to the public in batches. Relevant government departments were to strengthen routine supervision, use overt inspections and covert visits, and carry out targeted supervision and inspection.

Source: China Packaging Network (pack.cn), original link: http://news.pack.cn/show-362219.html