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A Brief Discussion on the Impact of the "Circular No. 78 on Finance and Taxation" on the Recycling Industry
Release time:
19 Jun,2015
The country is paying increasing attention to the recycling system for renewable resources, and tax policies are constantly being adjusted. Many renewable resource industrial parks have been built nationwide under government guidance. However, there are always flaws in the adjustment of tax policies, leading to many problems in the implementation of policies by local governments and enterprises. This is the root cause of frequent major tax cases in the renewable resources industry.
Many aspects of the policy are difficult to implement in practice, and tax authorities in different regions have different understandings of the policy. In general, economically less developed regions have a more lenient approach to implementation, while economically developed regions have a very strict approach, making it difficult for local renewable resource recycling enterprises to compete in the market. Many renewable resource recycling enterprises transfer invoicing and sales to less developed regions for the sake of market survival and development. The actual tax revenue reflects this: the less developed the region, the greater the tax revenue related to renewable resource recycling; conversely, in the developed regions that produce the most renewable resources, this tax revenue is significantly smaller, or even nonexistent. Why is this happening?
First, we need to talk about the types of renewable resources being recycled. In my opinion, the national tax policy on renewable resources has never clearly defined the distinction between civilian and industrial renewable resources. Civilian renewable resources refer to recyclable waste materials generated by individuals or households, generally including waste paper, waste plastic bottles, waste home appliances, waste glass bottles, and waste tires. Industrial renewable resources refer to recyclable waste materials generated mainly by factories and enterprises, generally including waste steel, waste non-ferrous metals, and other industrial waste. Of course, it is not possible to completely separate civilian from industrial renewable resources. However, we must acknowledge that this is the main source of these materials in our recycling system. For instance, taking waste iron as an example, with the rapid pace of urbanization, a large amount of waste iron previously collected from civilian sources has changed its origin; less and less comes from households, and it is mostly generated from factories, enterprises, and building demolitions.
Second, if we can distinguish them by source, we can differentiate our tax policies. In theory, civilian recycled materials must be handled with purchase invoices, while industrial recycled materials should be sold with invoices during the sales process of factories and enterprises, so there is no issue of purchase vouchers, or very few, provided that everyone abides by tax laws. Then, the policy should clearly distinguish how this should be done: industrial renewable resources enter the recycling system with VAT invoices; after simple processing, they are invoiced and sold to industrial enterprises. The difference between input and output in the processing trade is recognized by the document "Cai Shui 78" and allows qualified enterprises to receive tax refunds. However, civilian recycled materials are more complex. They are generated from daily life by individuals and families and cannot be sold with invoices; therefore, purchase invoices must be used. Once purchase invoices are used, all related issues arise. How to use purchase invoices in a standardized way is very meticulously defined by local tax departments. In principle, it should only be issued to urban and rural residents, but our recycling system structure is not like that. ①Waste materials from urban and rural residents are collected by individuals (mobile collectors); ②then sold to individual recycling stations (individual businesses); ③then sold by individual recycling stations to recycling companies; ④then centrally processed and sold to the enterprises that need them.
In the whole process, the renewable resource recycling company at the third stage is able to obtain purchase invoices. The problem is:
1. How can a renewable resource recycling company issue purchase invoices to urban and rural residents when they do not have direct contact with them?
2. If individuals collect waste materials from urban and rural residents, they should be considered individual businesses. According to the tax law, invoices must be issued by the tax authority, and a 3% business tax is levied. If the annual invoicing amount exceeds 800,000, it must be identified as a general taxpayer. Consider how these individuals collecting recyclable materials make a living; they go door-to-door to earn meager profits by selling their labor. How can tax regulations be followed?
3. Individual recycling stations (individual businesses), according to tax laws, must issue invoices when selling to recycling companies and also pay 3% tax. How many recycling stations operate this way in this industry? Most pay a fixed monthly tax or even operate without licenses. However, the annual income of a recycling station is more than 800,000 yuan.
4. To whom do recycling companies issue purchase invoices? I think the most direct recipients are individual recycling stations (individual businesses). What logic is this? Who should issue invoices to whom? So now the invoice logic of the entire recycling system is messed up. If the logical relationship of the invoice cannot be fundamentally solved, how can sustainable and legal operation be achieved?
Now, because "Cai Shui 78" stipulates that qualified paper mills can get a 50% tax refund, many paper mills, in order to maximize profits, issue their own purchase invoices (or affiliated companies issue purchase invoices), refusing to accept waste paper invoices from renewable resource recycling companies. Even if they reluctantly accept invoices, the price is inverted, leaving no room for the standardized recycling of waste paper enterprises. Is it legal for paper mills to issue their own purchase invoices? Who would they issue the purchase invoices to? If renewable resource recycling companies cannot issue invoices, how can they grow stronger? Even normal and legal operation is a problem! This is the root of various irregularities in the renewable resource recycling industry! Only by straightening out various relationships in the recycling system can we formulate good policies that meet the actual needs of enterprises, and make the industry stronger and bigger when the country increases investment in and guides the standardization of renewable resources. Especially this year, the country has made the environmental protection industry a national pillar industry, making it even more necessary to issue clearer plans and detailed rules for practical operation, so that the renewable resource industry can continue to develop in a standardized way, and the survival environment of our renewable resource recycling enterprises can become more harmonious!
This is a problem that has always plagued and cannot be solved in the use of purchase invoices (purchase vouchers) for renewable resource recycling. In the path of making enterprises bigger and stronger, there is always a sword of Damocles hanging over us. For operators in the recycling industry, tax issues and preferential market policies are secondary. The most important thing is to solve the problem of standardized and sustainable operation!
2016-03-20
Attachment: Suggestions on Purchase Invoice Management and Tax Refund Policies:
1. Waste material recycling operators should purchase and use purchase invoices uniformly printed by the national tax authority according to regulations; purchase invoices are only used for purchasing waste materials from individuals; when issuing purchase invoices, one invoice per household and one invoice per person must be adhered to, and invoices cannot be filled in summary.
2. When waste material recycling operators sell waste materials, they should use the uniformly printed "×× Province Waste Material Sales Unified Invoice" issued by the national tax authority.
3. Acquisition invoices and sales invoices obtained by waste material recycling businesses should be managed as value-added tax special invoices.
4. For waste material recycling businesses, when the payment amount exceeds 1000 yuan for each household or individual after issuing acquisition invoices and ordinary invoices for the acquisition of waste materials, payment must be made through a financial institution.
5. If waste material recycling businesses fail to use acquisition invoices and issue sales invoices according to regulations when paying for goods, these waste materials will not be eligible for tax exemption.
6. Waste material recycling businesses should maintain separate accounting for tax-exempt goods; those that fail to do so will not be eligible for tax exemption, and taxes that have already been exempted will be recovered.
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