Printing & Packaging Policy Brief: Seven Changes in Export Rebates, VAT Deductions and HK/Macao Investment Access

1. Rural Consumption Programs Lift Packaging and Printing Demand

China has started rolling out measures to encourage spending in rural markets. Under these policies, rural households can receive a 13% subsidy when buying home appliances, and government subsidies also apply to purchases of large agricultural machinery. These incentives raise product consumption and, in turn, create additional demand for packaging and printing products.

1. Unified Corporate Income Tax Rules Across Ownership Types

The revised tax framework created a more level playing field by setting one 25% income tax rate for both domestic and foreign-invested companies, benefiting printing and printing equipment businesses. The Implementing Regulations of the Enterprise Income Tax Law came into force on January 1, 2008. Industry observers identified seven gains for printing equipment manufacturing: a unified 25% income tax rate for domestic and foreign-invested enterprises; deduction of reasonable wage and salary expenses; a unified and higher deduction ratio for advertising and business promotion expenses; a reduced 20% tax rate for qualified small low-profit enterprises; a reduced 15% tax rate for high-tech enterprises; tax reductions or exemptions for environmentally friendly and resource-saving printing enterprises; and multiple incentives for technological innovation.

1. Mandatory Cleaner Production Audits for Covered Enterprises

Companies that exceed discharge limits (“double-exceed”) or handle toxic and hazardous substances (“double-have”) must go through compulsory cleaner production audits. In printing, waste photosensitive materials are classified as a “double-have” substance. In July 2008, the Ministry of Environmental Protection released the Notice on Further Strengthening Cleaner Production Audits of Key Enterprises. Environmental departments at all levels were directed, under the Cleaner Production Promotion Law, to oversee mandatory audits at “double-exceed” and “XX-have” enterprises.

1. Interest Subsidies Available for Imported Printing Equipment

For 2007 imports, printing firms could seek interest subsidies on three offset press categories and one die-cutting machine type that met specified technical parameters, with support reaching 6%–7% of import value. The Ministry of Finance and the Ministry of Commerce jointly issued the Notice on Application for 2007 Import Interest Subsidy Funds, stating that certain equipment imported in 2007 was eligible to apply. Under coordination by the General Administration of Press and Publication, three offset press types qualified: newspaper web offset presses (84431100), commercial web offset presses (84431100), and sheetfed offset presses (84431200 and 84431310).

Die-cutting machines (84418090), widely used in packaging and printing, were also eligible. For import interest subsidies, the import value serves as the principal for calculating the subsidy, and the subsidy rate must not exceed the latest one-year RMB loan rate published by the People's Bank of China at the time of subsidy settlement. The Ministry of Finance and the Ministry of Commerce set a subsidy coefficient within the total annual interest subsidy budget and verify the subsidy amount.

1. Higher Export Tax Rebate Rates for Selected Printing Products

From November 1, 2008, export tax rebate rates for selected publications and paper stationery moved up to 13% and 11%, respectively. On October 21, 2008, the Ministry of Finance and the State Administration of Taxation issued the Notice on Raising Export Tax Rebate Rates for Certain Commodities. The notice stated that from November 1, 2008, rebate rates for certain labor-intensive, high-tech and high-value-added goods would be raised appropriately. For some publications and paper stationery, the rates reached 13% and 11%.

Paper stationery falls under Chapter 48 of the Customs commodity codes, commodity codes 4820100000–4821900000. Its previous export tax rebate rate ranged from 5% to 7%, and it was raised to 11%. Publications fall under Chapter 49, commodity codes 49011000–49040000, 49059100, and 49059900. Their previous export tax rebate rate ranged from 11% to 13%, and an increase was still under discussion.

1. VAT Input Deduction on Equipment Purchases by Printing Enterprises

Beginning January 1, 2009, general VAT taxpayers across the country—regardless of sector or location—could deduct input VAT embedded in newly bought equipment. Unused input VAT could be carried into later periods, a change that also benefited printing. 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, setting out a nationwide VAT transformation plan for 2009.

The reform’s core was as follows: from January 1, 2009, without changing existing VAT rates, all general VAT taxpayers nationwide, in any region or industry, could deduct input VAT on newly purchased equipment; any excess input VAT would be carried forward to the next period. The deduction covered mainly machinery, mechanical equipment, transport vehicles, and other production- and operation-related equipment, tools, and instruments. Buildings, structures, and other real estate were excluded.

To accompany the VAT transformation, two policies that had helped printing enterprises were to be removed: VAT exemption on imported equipment and VAT rebates for domestic equipment bought by foreign-invested enterprises.

1. Lower Registered Capital Threshold for Hong Kong and Macao Packaging Printing Investments

From January 1, 2009, Hong Kong and Macao investors forming packaging and decorative printing businesses in mainland China would be subject to the same minimum registered capital rules as mainland companies. The Ministry of Commerce signed Supplement V to the Mainland and Hong Kong Closer Economic Partnership Arrangement and Supplement V to the Mainland and Macao Closer Economic Partnership Arrangement with the Hong Kong and Macao Special Administrative Region governments, respectively. Both supplements took effect on January 1, 2009.

The annexes set out the mainland’s commitments for Hong Kong and Macao printing and publishing services: minimum registered capital for Hong Kong and Macao service providers establishing packaging and decorative printing enterprises in the mainland would match that for mainland enterprises. The previous minimum for Hong Kong and Macao investment in such mainland packaging and decorative printing enterprises was 10 million yuan. Starting in 2009, they received “national treatment,” with a minimum of 1.5 million yuan, the same as mainland firms. This lowered the entry barrier further and was expected to help the mainland printing industry attract Hong Kong and Macao capital.

— This article is reposted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-362094.html