July 23, 2003 – One month after the Semiconductor Industry Association called for China to abolish value-added taxes levied on semiconductors, the country is taking that advice to heart.
According to reports from SinoCast China IT Watch and the Financial Times, China’s State Administration of Taxation, Customs General Administration, Ministry of Information Industry, and Ministry of Commerce have formed a joint group to consider whether the nation’s tax policies on semiconductors fall in step with WTO rules. A senior consultant with the China Center for Information Industry Development says the group could lower the value-added tax rate from 17% to 13%, which would generate more domestic orders.
Created in 1994 and expanded in 2001, the value-added taxes were designed to assist China’s ailing IC industry by reimbursing domestic IC producers. However, the policies tend to favor chip exports, which comparatively inflates the costs of selling chips domestically. As a result, profit-savvy Chinese IC companies are sending their chips to overseas investors to take advantage of the tax breaks, and then re-importing them to sell domestically.