China Expands Tax Incentives to Promote Circular Economy

November 28, 2011 Posted by China Briefing Reading Time: 3 minutes

Nov. 28 – China will reduce or eliminate value-added tax (VAT) burdens on enterprises that recycle wasted resources during production, in a bid to further promote the country’s circular economy that makes industrial manufacturing more environmentally friendly.

The “Circular on Adjustments of VAT Treatment to Products and Services Output through Comprehensive Utilization of Resources (caishui [2011] No.115)” released by the State Administration of Taxation and Ministry of Finance on November 21, grants an increasing number of recycling companies the eligibility to enjoy favorable VAT treatment.

VAT exemption
Starting from August 1, 2011, the following services and product sales are completely exempt from VAT imposition when specific criteria are met:

Construction sand and gravel aggregate self-produced with the use of construction waste and gangue
Services of waste disposal and sludge treatment

100 percent-VAT refund upon collection
Starting from August 1, 2011, the sale of the following self-produced products can receive a 100 percent VAT refund upon collection when certain criteria are met:

Electricity and heat produced with the use of residual heat and pressure during industrial production
Electricity and heat produced with the use of organic waste types detailed in the Circular
Dry sludge and fuel produced with the use of the sludge generated from waste-water treatment
Feed-grade mixed oils produced with the use of waste animal/vegetable oils
Industrial oils produced with the use of recycled waste mineral oils
Emulsifying agents (for emulsified oils) and waterproofing membrane accessories produced with the use of the oil field sludge generated from oil recovery
Wigs produced with the use of human hair

80 percent-VAT refund upon collection
Starting from January 1, 2011, the sale of the following self-produced products can enjoy a 80 percent VAT refund upon collection when certain criteria are met:

Fiberboards, particle boards, blockboards, activated carbon, tannin extract, hydrolyzed alcohol and carbon rods produced with the use of the three types of agricultural and forestry residues stipulated in the Circular
Cardboards produced with the use of salix

50 percent-VAT refund upon collection
Starting from August 1, 2011, the sale of the following self-produced products – when meeting specific criteria – can be eligible for a 50-percent VAT refund upon collection:

Paper products produced with the use of bagasse (VAT refund available starting on January 1, 2011)
Alumina and activated calcium silicate produced with the use of fly ash and gangue
Sludge microbial protein produced with the use of sludge
Porcelain insulators and calcined kaolin produced with the use of gangue
A collection of metals (as specified in the Circular) produced with the use of industrial metal wastes (as listed in the Circular)
Gasoline, diesel fuel, waste plastic/rubber oils, petroleum coke, carbon black, recycled pulp, aluminum powder, recycled materials for automobiles, motorcycles, household electrical appliances, pipes, chemical fibers as well as bottles and recycled plastic products produced with the use of waste plastics, waste PVC products, waste rubber products and aluminum composite paper packaging materials
Yarns, weaved cloth, non-woven fabrics, felt, adhesives and recycled polyester products produced with the use of waste natural/chemical fiber products
Four types of graphite products (as detailed in the Circular) produced with the use of waste graphite

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China. The firm specializes in assisting foreign enterprises with their tax obligations. For advice, please email china@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

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