Tax burden differences between self-production and foreign trade

For now, the enterprise in our country export the products include the self-production and foreign trade. Similarly, export rebates also have two different ways, one is self-production (delegation) export, and other one is foreign trade export. Because calculating export rebates has too much different between the self-production and foreign trade, the taxpayer should use the export ways with lower tax rate and higher tax refund.

Now the foreign trade enterprise’s value-added tax (VAT) refund of export cargo, according to computation of tax amount. The formulae is, refundable tax=payment for goods * tax refund rate; Both of the account of stock export cargo and sales account adopt the weighted average price accounting in the enterprise, refundable tax=quantity of export cargo* weighted average cost price* tax refund rate, the tax refund is basis on the foreign trade enterprise’s cost price of export cargo. However, self-production enterprise exports cargo, value-added tax refund should be executed: exempt, offset, refund or refund after collection. Amount of export refund depend on sales revenue of FOB and input VAT.

The enterprise adopt self-production(delegation) export and self-handling export refund, what’s different with the giving sales of cargo to foreign trade enterprise and handling export refund? These two ways have two different methods of tax refund, therefore obtaining two different results.

For example, the Sino-foreign firm A produced industrial products based on raw material of agricultural products, and by 1999 the value of its exports amounted to two hundred million, the 15 million of input VAT can be offset. The firm executed self-production export with the refund after collection; the tax rate is 17 percent, tax rebate rate is 13 percent, the amount of added-value tax a year should be 200 *17%-15 =19 (million). The amount of export refundable tax is 200*13%=26(million). Tax collection office could levy 19 million VAT; revenue authorities should refund 26 million of tax. Finally, the firm will actually get 7 million of Tax Subsidies.

If the company A related with foreign trade company B, the company A sold products to company B with same price, and then the company B sold to overseas with same price also, the company A invoiced VAT about total 200 million, and the company A should pay VAT: 200/ (1+17%)*17%-15=14.06 (million), the company B could refund tax: 200/(1+17%)*13%=22.22 (million). Company A and company B actually obtained tax subsidies: 22.22-14.06=8.16(million).

Through the above examples, we are easy to find, same export sales income, different results. From the company A and company B, self-production export would be obtained 7 million of tax subsidies, and foreign trade export was actually obtained 8.16 million of tax subsidies, there is a difference of about 1.16 million. Obviously, the foreign trade export is more cost-efficient to company A and B.

Monetary unit: RMB.