Beijing to end value-added tax breaks for onshore wind and other industries

What the taxman giveth, the taxman taketh away.

On October 17, the finance ministry (MoF) announced that several long-standing VAT rebate policies will be cancelled or reduced starting November 1.

This might surprise you: Several sectors linked to the low-carbon transition are on the cutting block, including:

• Onshore wind power sales, which currently enjoy a 50% VAT rebate
• Coalbed methane extraction and sales, which currently enjoy a full VAT rebate
• New nuclear power units, which currently enjoy a phased VAT rebate over the first 15 years of commercial operation (though existing units will be grandfathered)
• “New wall materials,” referring to lightweight and energy-efficient building materials, which currently enjoy a 50% rebate

Other affected areas include:

• Tangible asset financial leasing, which currently receives a full refund for VAT burdens exceeding 3%
• Aircraft maintenance services, which currently enjoy a full rebate for burdens exceeding 6%
• Imports of diamonds, platinum, and related products, which are currently exempt from import VAT

Get smart: Clean energy and high-tech services remain priority sectors, but policymakers clearly believe they’re now strong enough to start standing on their own.

• With land sales collapsing and property-related revenue drying up, policymakers want advanced manufacturing and cleantech to start supporting the budget, not draining it.

Get smarter: The rebate rollback is the latest in a slow-but-steady campaign to shore up weak tax revenue – following earlier moves to trim VAT refunds and phase out exemptions.

• Taken together, these efforts should help lift annual VAT revenue growth by a few percentage points.
• That's welcome relief, but not enough to meet Beijing's 3.7% overall tax revenue growth target for the year.