China's VAT cut will benefit manufacturers, enhance competitiveness: analysts
Foreign companies in China have announced price cuts on their products in response to the nation's significant value-added tax (VAT) cut, which took effect on Monday. Analysts said this trend will improve their competitiveness in the market amid intensified competition.
Apple on Monday cut 300 yuan ($44.7) to 500 yuan from the prices of some of its iPhone models, media reports said.
Italy-based luxury company Gucci said it would cut prices 3 percent in the Chinese market starting Monday, and LVMH is doing likewise, Beijing Business Today reported.
German carmaker Volkswagen said over the weekend it would cut the sticker prices on cars sold in China from Monday to actively respond to China's VAT reduction policy and "effectively implement tax reductions and fee reductions," according to a post on the company's website.
Volkswagen will cut as much as 17,000 yuan from the price of its flagship model, the new generation of Touareg. Other car producers like Jaguar Land Rover and BMW cut their sticker prices in March.
The VAT cut was announced on March 5 by Premier Li Keqiang in this year's Government Work Report.
The VAT rate was cut from 16 percent to 13 percent for the manufacturing industry, and for sectors including transportation and architecture, the rate dropped from 10 percent to 9 percent.
The VAT reform not only reduced the actual tax rates - it also increased tax deductions. The value of the tax cuts and related moves should exceed 1 trillion yuan, Wang Jianfan, an official with the Ministry of Finance, told a press conference on Wednesday.
"The manufacturing sector will see most benefit as the industrial tax rate is being lowered three percentage points, which is in line with China's efforts to advance the manufacturing industry and open up the sector," Xu Hongcai, a Beijing-based economist, told the Global Times on Monday.
Given intensified competition and declining demand in some sectors like passenger cars, the tax cut offers scope for foreign companies to lower product prices and help them enhance their competitiveness, Xu said, adding that domestic consumers will benefit in the end.
The VAT cut will also inject impetus into domestic companies in sectors including services, helping them enhance their competitiveness, said Lin Jing, associate professor of the School of Banking & Finance of the University of International Business and Economics.
Lin told the Global Times on Monday that the reductions will boost the net profits of domestic companies, which will invest more in research and development, technological innovation and modernization of their equipment.
China introduced the VAT system in 1979 and it has become the largest category of tax in the country, with revenue exceeding 6 trillion yuan in 2018, news site chinanews.com reported on Monday.