What should we do after Reduction of VAT rates per 1 April 2019

China’s announcement Friday that April 1 will be the implementation date for value-added tax cuts aimed at stimulating manufacturing activity and lowering input costs for companies drew a positive response from commodities market players.

Beijing unveiled stimulus policies on March 5 including VAT cuts in manufacturing to 13% from 16%, and for transportation and construction sectors to 9% from 10%.

The thermal coal market will benefit from a VAT cut of 3 percentage points to 13% as it will help lower costs for end-users like power plants, with China aiming to reduce electricity prices for industrial usage by 10%, traders said.

“Tax is included in our costs, so now seaborne coal traders will also be able to lower their offers to Chinese buyers after the reduction,” a Singapore-based coal trader said.

Most petroleum products like crude oil, gasoline, gasoil, naphtha, jet fuel and fuel oil will see the VAT reduced to 13% from 16%. VAT for LPG and natural gas will be cut from 10% to 9%.

The VAT cut will also marginally lower fuel costs for retail customers, with gasoline prices dropping to around Yuan 7.8/liter from Yuan 8/liter, a refining source in southern China said.

In petrochemicals, while the VAT cuts could boost butadiene exports from China in the longer run, the immediate impact was muted.

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