Recently, China’s Ministry of Finance and the National Tax Administration announced an increase in the textile, clothing export tax refund rate from 11 percent to 13 percent. The export tax refund rate of certain bamboo products will remain at 11 percent; with the new tax refund rates being implemented from August 1, 2008.
In accordance with the export tax refund policy, non-tax-rebate part will be directly included in the cost of production. Theoretically speaking, the profit increasing rate will be up with the increasing rate of the export tax refund. Based on 2007 data, the export tax refund rate increased 2%, and in 2007 the textile and apparel industry-wide increase in pre-tax profit rose to 19.2 billion yuan.
Himfr.com, the leading third generation online business-to-business (B2B) platform, believes that the real situation facing enterprises is not so optimistic, as historical experiences from the past few years suggest changes of the export tax refund rate is not entirely born by the exporters. Due to the increasing export tax refund rate, foreign investors will inevitably reduce product pricing. Himfr.com estimates that 50% of the change in the tax refund rate can pass on price adjustments. The export Tax refund rate increased 2%; the pre-tax profits of textile can relatively increase 10.8%.
Chinese chemical fiber enterprises are big but relatively weak; they can not easily climb out of a slump. After the Guangzhou Trade Fair 2008, the textile industry saw a decrease in orders. The Chemical fiber industry as a whole benefited a lot from the adjustment of the textile tax refund. Since the second half of 2007 we believe that declining buying demands of Europe and the United States market is the main reason for the economic downturn. And the following factors: accelerating the appreciation of the RMB, the increased cost lead by rising prices of production factors, the same capacity for rapid expansion, low product differentiation and excessive competition, all are key causes. The export tax refund rate is not the main factor affecting exports.
As export-oriented industries, the textile and garment industries bear heavy pressure, including raw material prices, the appreciation of the RMB, and the rising labor costs. From the industry supply and demand situation, despite the export tax refund rate to stimulate the increase, the overall situation is still not optimistic, and Himfr.com expects that industry structure adjustments is the substantive profit growth.
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