SAN JOSE, Calif. -- The Semiconductor Industry Association (SIA) Wednesday (October 29, 2003) said it has prepared a study of China's emerging semiconductor industry that finds that the country's value-added tax (VAT) rebate scheme imposes a cost penalty on semiconductor importers trying to compete for sales in China and is therefore discriminatory. In addition its discriminatory nature distorts trade investment.
In its role as a member of the World Semiconductor Council, the SIA spoke out against the differential use of VAT by China in May (see May 15 story).
"The SIA has discussed this matter on several occasions with the U.S. government, and the Chinese government and industry. We will continue to raise this issue and we're hopeful it can be resolved quickly and amicably," said SIA president George Scalise, in a statement.
"The SIA supports the U.S. government bilateral efforts with China to eliminate the discrimination against imported semiconductor devices created by the implementation of its VAT," Scalise concluded.
The SIA's study is entitled 'China's emerging semiconductor industry " the impact of China's preferential value-added tax on current investment trends'.
The report outlines other factors contributing to the growth of China's semiconductor industry; including income tax holidays for factories located in China; tax incentives for individuals and man-power and education programs. With the exception of the VAT, the study does not criticize promotional efforts by China as a general matter.
The SIA maintains that China can best develop its economy and abide by international trade rules by equally lowering the VAT for both imports as well as domestically produced semiconductors.
Currently China provides for VAT rebates on semiconductor products manufactured and sold within the country while continuing to charge the full VAT on imported semiconductor products. China applies a VAT of 17 percent on sales of imported and domestically produced semiconductors.
However, in June of 2000, China's State Council announced that all integrated circuits manufactured in China would receive a rebate of the VAT in excess of 6 percent of the company's tax burden. The policy was amended in September 2001, with an announcement that integrated circuits both designed and built in China would be eligible for rebate of the VAT in excess of 3 percent. The VAT rebates must be applied to research and development or capital expenditures within China.
"GATT Article III on National Treatment prohibits a WTO member country from engaging in activity that treats domestic producers and products more favorably than imported products," said Scalise in the statement.
The Chinese implementation of its VAT puts pressure on foreign semiconductor makers to design and manufacture their products within China, or face a cost penalty. The WTO does not allow countries to eliminate tariffs on the one hand, and arbitrarily impose a tax applied disproportionately on the other.
The SIA's study 'China's emerging semiconductor industry " the impact of China's preferential value-added tax on current investment trends, is available for as a free PDF from the SIA's website or a hard copy can be purchased.