LONDON -- After agreeing to scrap a value added tax rebate on integrated circuits made in China, the Chinese government has announced a plan to apply a similar rebate on products that contain ICs made in China, according to an Associated Press report Wednesday (Sept. 22).
The plan, announced Tuesday by the National Development and Reform Commission, appears to apply to chips made in China by both domestic and foreign companies, the report said, adding that the commission had asserted that the tax rebate complies with China's agreements to pursue free-trade policies.
The United States filed a complaint with the World Trade Organization against the original VAT rebate on the basis that it unfairly favored Chinese chipmakers and hurt offshore makers of chips. China had been handing back all but 3 percent of the 17 percent VAT but agreed to scrap the measure in July 2004. Now China is planning to give a full rebate of the 13 percent VAT on exports of products that contain integrated circuits made in China, the report said.
This is likely to favor domestic board, equipment and chipmakers, but could give rise to hard-to-monitor tokenism where Chinese-made chips are included in a design to obtain the tax break while more advanced chips are included to obtain the functionality.