Manufacturers and trading companies are concerned about government plans to create a new rebate system for export taxes aimed at alleviating the heavy burden on the Ministry of Finance. The ministry owed exporters 247.7 billion yuan (US$29.8 billion) in rebates at the end of 2002.

The government is said to be looking at several plans to change the system. But industry insiders have only seen one draft proposal, which was reported by the China Business Post over the weekend.

That scheme has drawn some criticism.

Currently, manufacturers pay a 17 percent value-added tax on all goods they produce, but receive a rebate of between 9 and 17 percent on all products exported outside of China's mainland.

The new plan would see the average rebate lowered from 15 percent to 11 percent starting next year, saving the central government more than 44 billion yuan (US$5.32 billion), the Beijing-based newspaper reported.

Rebates on natural resources that are in limited supply in China, such as refined oil, crude, wood and copper, would be canceled under the new scheme, as will rebates on resources that could affect international market prices such as cashmere, rare earth and tungsten.

That part of the plan will save the government more than 10 billion yuan (US$1.21 billion) a year, according to some estimates.

In addition, the plan calls for local governments to pay a quarter of the rebates starting next year. Currently, the Ministry of Finance pays all of the rebates.

The new scheme also changes the way the rebates are paid, with the money going to manufacturers in the future instead of foreign trade companies, the report said. The government hopes that change will encourage more manufactures to export goods directly instead of using middlemen.

Exporters say the rules will slash their profits, which are already slim. They also said it will be difficult for government to implement the plan.

"Most exporters are making a thin profit and for some, profits only come from tax rebates," said Xu Weizhang, an official with Shartex International Trading Co Ltd, a Shanghai-based clothing exporter that sold US$60 million worth of goods overseas last year.

"If the plan is finally announced we will earn even thinner returns and lose some export orders since we can not make any money out of them," Xu said.

He said his company earns a profit margin of only 5 percent.

"If the rebate rates are lowered there won't be much left," he said.

Others question the feasibility of the practice of refunding the tax to manufacturers.

"Manufactures need foreign trade companies to extend deals. If the trade agencies can not get rebates, what's the point of us doing so," said Wang Lei, a saleswoman with Shanghai Silk (Group) Co Ltd, a major textiles and clothing exporter.

(eastday.com July 30, 2003)