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Commentary on the resource recycling tax rebate policy - tax benefits implemented, profitability improved
Release time:
30 Jun,2015
Core Viewpoint:
Value-added tax (VAT) refund incentives introduced, benefiting recycled resources
Recently, the Ministry of Finance and the State Taxation Administration jointly issued a notice (Cai Shui [2015] No. 78) on the "Catalog of Value-Added Tax Incentives for Resource Comprehensive Utilization Products and Services," which will be officially implemented on July 1. Compared with the previous "Notice on Adjusting and Improving the Value-Added Tax Policy for Resource Comprehensive Utilization Products and Services" (Cai Shui [2011] No. 115), this policy mainly increases tax incentives for recycled resources, granting a 30%-70% VAT immediate refund for related comprehensive utilization resources and products.
Policy Adjustments, Directly Addressing Pain Points
At the end of 2008, China issued the "Notice on the Value-Added Tax Policy for Recycled Resources" (Cai Shui [2008] No. 157), which stipulated that recycled resource recovery enterprises would implement a post-tax refund policy before the end of 2010. In 2009, 70% was refunded to taxpayers, and in 2010, 50% was refunded. From January 1, 2011, all refunds were cancelled. China's current recycled resource recovery channels have low entry barriers and are highly fragmented. A formal and legal recovery system has not yet been established, and a large number of individual vendors engaged in recycling lack environmental awareness. Therefore, tax incentives for the recovery stage have not effectively solved the problem of a large amount of goods flowing to illegal individual vendors. This policy changes the beneficiaries of tax incentives to dismantling and utilization enterprises. Compared with the recycled resource recovery stage, the dismantling and utilization stage has higher entry barriers, and enterprises operating in this sector are well-regulated, environmentally compliant, and of a certain scale, with a relatively high industry concentration. Therefore, we believe that this tax incentive will effectively guide recycled resources to formal dismantling and utilization enterprises, helping China establish a formal and legal recycled resource recovery system and benefiting the long-term development of the industry.
Domestic Channels Benefit Most, Significantly Improved Profitability
Recycled resource recovery and utilization enterprises mainly purchase from individual households, and suppliers are unable to issue VAT invoices, resulting in the inability to deduct input VAT paid by recovery and utilization enterprises. After the implementation of this VAT tax incentive policy, taking the recycling and utilization industry of waste electrical and electronic products as an example, profitability will be increased by at least 20%, and the competitiveness of formal dismantling and utilization enterprises will be further enhanced.
Core Focus: Channel Integration Capabilities
The VAT refund policy improves corporate profitability and benefits the long-term development of the industry, with domestic recycling and utilization enterprises benefiting most directly. According to the proportion of domestic recycling and elasticity of enterprises, it is recommended to focus on the following A-share recycled resource related targets in order: GEM, ST Qinling (China Recycling), Dongjiang Environmental Protection, Sande Environment, Chifeng Gold, Yuguang Gold Lead, Yiqiu Resources, etc. We believe that tax incentives are only one of the policy benefits for the recycled resource industry. Future comprehensive upgrades in environmental protection requirements will drive the release of potential demand for recycled resources in multiple fields, and related supporting policy dividends will focus on the construction of the recycling system. Recycling channel integration capabilities will become a core competitiveness. We believe that related industry leaders are expected to leverage the capital market and the Internet to achieve vertical integration of the industrial chain, realizing integrated recycling and utilization, significantly improving profitability, and reshaping the industry competitive landscape. Key recommendations: Yuguang Gold Lead, Chifeng Gold, Yiqiu Resources.
Risk Warning
The enforcement of environmental protection policies is less than expected; the progress of recycling system construction is lower than expected; the progress of recycling channel integration is lower than expected.
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Major Positive News: Recycled Resources Restart VAT Refund
Value-added tax (VAT) refund incentives introduced, benefiting recycled resources On June 10, the draft of the environmental protection tax was released, and we expected that the relevant financial and tax policies of the recycled resource industry would follow suit, and domestic recycling and utilization enterprises would directly benefit. Our expectations have been realized. On June 24, the Ministry of Finance and the State Taxation Administration jointly issued the "Notice on Issuing the Catalog of Value-Added Tax Incentives for Resource Comprehensive Utilization Products and Services" (Cai Shui [2015] No. 78), which will be officially implemented on July 1. Compared with the previous "Notice on Adjusting and Improving the Value-Added Tax Policy for Resource Comprehensive Utilization Products and Services" (Cai Shui [2011] No. 115), this policy mainly increases tax incentives for recycled resources, granting a 30%-70% VAT immediate refund for related comprehensive utilization resources and products.
Policy Adjustments, Directly Addressing Pain Points. At the end of 2008, China issued the "Notice on the Value-Added Tax Policy for Recycled Resources" (Cai Shui [2008] No. 157). The original policy targeted recycled resource recovery enterprises, implementing a post-tax refund policy before the end of 2010. In 2009, 70% was refunded to taxpayers, and in 2010, 50% was refunded. From January 1, 2011, all refunds were cancelled. China's current recycled resource recovery channels have low entry barriers and are highly fragmented. A formal and legal recovery system has not yet been established, and a large number of individual vendors engaged in recycling lack environmental awareness. Therefore, tax incentives for the recovery stage have not effectively solved the problem of a large amount of goods flowing to illegal individual vendors. This policy changes the beneficiaries of tax incentives to dismantling and utilization enterprises. Compared with the recycled resource recovery stage, the dismantling and utilization stage has higher entry barriers, and enterprises operating in this sector are well-regulated, environmentally compliant, and of a certain scale, with a relatively high industry concentration. Therefore, we believe that this tax incentive will effectively guide recycled resources to formal dismantling and utilization enterprises, helping China establish a formal and legal recycled resource recovery system and benefiting the long-term development of the industry.
Table 1 : Adjustments to Recycled Resource Taxes and Fees
| Effective Date |
Document Name |
Main Content |
| May 1, 2001 |
“Notice on the Value-Added Tax Policy for the Recycling Business of Waste Materials” Cai Shui [2001] No. 78 |
From May 1, 2001, the sale of waste materials was exempt from value-added tax. |
| January 1, 2008 |
“Notice on Several Preferential Policies for Enterprise Income Tax” Cai Shui [2008] No. 001 |
Except for some industries, all other enterprise income tax preferential policies implemented before January 1, 2008 were cancelled. The recycled resource industry that meets the "Catalog of Enterprise Income Tax Incentives for Resource Comprehensive Utilization" enjoys a reduction of 90% in income tax. |
| January 1, 2009 |
“Notice on the Value-Added Tax Policy for Resource Comprehensive Utilization and Other Products” Cai Shui [2008] No. 156 |
Recycled water, rubber powder produced from waste tire raw materials, retreaded tires, etc. are exempt from value-added tax; wastewater treatment services are exempt from value-added tax; electricity or heat produced using garbage as fuel implements immediate value-added tax refund, etc. |
| January 1, 2009 |
“Notice on the Value-Added Tax Policy for Recycled Resources” Cai Shui [2008] No. 157 |
The policy of exempting sales from value-added tax was cancelled. Before the end of 2010, a post-tax refund policy was implemented. In 2009, 70% was refunded to taxpayers, and in 2010, 50% was refunded. From January 1, 2011, all refunds were cancelled, and value-added tax was levied at a 17% rate. |
| January 1, 2011 |
Notice on Adjusting and Improving the Value-Added Tax Policy for Resource Comprehensive Utilization Products and Services, Cai Shui [2011] No. 115 |
Value-added tax is exempted for garbage treatment and sludge treatment and disposal services; a 100% value-added tax immediate deduction and refund policy is implemented for the self-produced goods of industrial oil materials such as lubricating oil base oil, gasoline, and diesel oil produced using industrial waste heat, food waste power generation, and recycled waste minerals; an 80% value-added tax immediate deduction and refund policy is implemented for products such as wood fiberboard produced using three types of agricultural and forestry surplus materials, such as remaining materials, small and medium-sized firewood, and crop straw, as raw materials. |
| July 1, 2015 |
Notice on Issuing the Catalog of Value-Added Tax Preferential Policies for Resource Comprehensive Utilization Products and Services, Cai Shui [2015] No. 72 |
For general value-added tax payers, the sale of self-produced resource comprehensive utilization products and the provision of resource comprehensive utilization services, a value-added tax immediate deduction and refund preferential policy of 30%-70% of the relevant comprehensive utilization resources and products. |
Data Source: Public Information, GF Securities Development Research Center
Domestic channels benefit the most, and profitability has significantly improved. 再生资源回收利用企业主要向个体化进行采购，供应商难以开具增值税发票，导致回收利用企业缴纳的增值税无法进行进项税抵扣。此次增值税税收优惠政策实施后，以废旧电器电子产品回收利用行业为例，将至少提升盈利能力20%以上，正规拆解利用企业的竞争力将进一步提高。
Table 2: Calculation of 30% Tax Refund for Current Catalog of Waste Electrical and Electronic Products (Unit: Yuan/Unit)
| Product |
Material Value |
Value-Added Tax Payable |
30% Tax Refund |
| Refrigerator (≤150L) |
58.68 |
9.98 |
2.99 |
| Refrigerator (Above 150L) |
187.85 |
31.93 |
9.58 |
| Window Air Conditioner |
132.35 |
22.50 |
6.75 |
| Wall-Mounted Air Conditioner |
211.52 |
35.96 |
10.79 |
| Cabinet Air Conditioner |
422.57 |
71.84 |
21.55 |
| Double-Tub Washing Machine |
105.77 |
17.98 |
5.39 |
| Automatic Washing Machine |
119.67 |
20.34 |
6.10 |
| Drum Washing Machine |
174.53 |
29.67 |
8.90 |
| TV (≤25 inches CRT) |
44.10 |
7.50 |
2.25 |
| TV (Above 25 inches CRT) |
57.55 |
9.78 |
2.94 |
| Desktop Computer (Including Monitor) |
53.55 |
9.10 |
2.73 |
Data Source: Ministry of Finance, State Taxation Administration, Environmental and Resource Protection Department of the National Development and Reform Commission, GF Securities Development Research Center
Profitability of waste electrical and electronic product processing enterprises increased by more than 20%. In mid-2013, Zhongsheng's operating revenue was 1.141 billion yuan, net profit was 134 million yuan, and the processing volume was 7.6286 million units. Based on this calculation, Zhongsheng's revenue per unit of waste home appliances (including subsidies) was 149.50 yuan, and the net profit per unit was 17.55 yuan. Since Zhongsheng is the leading enterprise in the processing of waste electrical and electronic products, its processing volume in 2013 accounted for about 19% of the official total. Therefore, we use Zhongsheng as an example to calculate the impact of the value-added tax refund policy (30%) on the company's profitability.
We assume that the fund subsidy included in Zhongsheng's per-unit revenue is 80 yuan, so the value of recycled resources per unit of waste home appliances is about 69.5 yuan. If this part of the revenue enjoys a 30% value-added tax refund, the profit can be increased by 3.54 yuan/unit, Profitability can be increased by 20.43%.
Figure 1: Calculation of the Impact of Tax Incentives on Zhongsheng's Revenue and Net Profit (Unit: Yuan/Unit)
Data Source: Ministry of Finance, State Taxation Administration, Company Announcements, GF Securities Development Research Center
Core Focus: Channel Integration Capabilities
The value-added tax refund policy improves the profitability of enterprises, which is beneficial to the long-term development of the industry, and domestic recycling enterprises benefit the most directly. According to the proportion of domestic recycling and elasticity of enterprises, it is recommended to pay attention to the A-share related targets of renewable resources in order: GEM, ST Qinling (Zhongsheng), Dongjiang Environmental Protection, Sande Environmental Protection, Chifeng Gold, Yuguang Gold Lead, Yiqiu Resources, etc. We believe that tax incentives are only one of the policy benefits of the renewable resources industry. In the future, comprehensive upgrades of environmental protection requirements will promote the release of potential demand for renewable resources in multiple fields, and relevant supporting policy dividends will focus on the construction of the recycling system, and the ability to integrate recycling channels will become the core competitiveness. We believe that related industry leaders are expected to leverage the capital market + the Internet to carry out vertical integration of the industrial chain, achieve integrated recycling + utilization, significantly improve profitability, and reshape the industry competition pattern. Key recommended allocation: Yuguang Gold Lead, Chifeng Gold, Yiqiu Resources.
Risk Warning
The enforcement of environmental protection policies is less than expected; the progress of recycling system construction is lower than expected; the progress of recycling channel integration is lower than expected.
Appendix: Catalog of Value-Added Tax Preferential Policies for Resource Comprehensive Utilization Products and Services
| Table 3: Tax Refund Ratio of the Catalog of Value-Added Tax Preferential Policies for Resource Comprehensive Utilization Products and Services |
|||||
| Category |
Serial Number |
Name of Comprehensive Utilization Resources |
Name of Comprehensive Utilization Products and Services |
Technical Standards and Related Conditions |
Tax Refund Ratio |
| I. Co-produced and Associated Mineral Resources |
1.1 |
Oil shale |
Shale oil |
More than 95% of product raw materials come from the listed resources |
70% |
| 1.2 |
Coalbed methane (coal mine gas) produced during coal mining |
Electricity |
More than 95% of product raw materials come from the listed resources |
100% |
|
| 1.2 |
Oil sludge (scum) produced during oil field oil extraction |
Emulsified oil blending agent and waterproof roll material auxiliary products |
More than 70% of product raw materials come from the listed resources |
70% |
|
| II. Waste residue, wastewater, waste gas |
2.1 |
Waste residue |
Brick and tile (excluding burnt common bricks), blocks, ceramsite, wall panels, pipes (pipe piles), concrete, mortar, road manhole covers, road guardrails, fire-resistant materials, refractory materials (excluding magnesia-chrome bricks), insulation materials, mineral (rock) wool, microcrystalline glass, U-shaped glass |
More than 70% of product raw materials come from the listed resources |
70% |
| 2.2 |
Waste residue |
Cement (including cement clinker, hereinafter the same), or cement produced by grinding externally purchased cement clinker |
1. Cement of 42.5 grade and above, with raw materials 20% or more from the listed resources; other cement, with raw materials 40% or more from the listed resources; |
70% |
|
| 2.3 |
Construction and demolition waste, coal gangue |
Construction sand and gravel aggregates |
1. More than 90% of the raw materials are from the listed resources; |
50% |
|
| 2.4 |
Fly ash, coal gangue |
Alumina, active calcium silicate, porcelain insulators, calcined kaolin |
Raw materials for alumina and active calcium silicate production are 25% or more from the listed resources, the proportion of coal gangue in the raw materials for porcelain insulator production is not less than 30%, and the proportion of coal gangue in the raw materials for calcined kaolin production is not less than 90%. |
50% |
|
| 2.5 |
Coal gangue, coal slime, stone coal, oil shale |
Electricity, heat |
1. More than 60% of the raw materials are from the listed resources; |
50% |
|
| 2.6 |
Alumina red mud, calcium carbide slag |
Iron oxide, sodium hydroxide solution, sodium aluminate, tricalcium aluminate, desulfurizer |
1. More than 90% of the raw materials are from the listed resources |
50% |
|
| 2.7 |
Waste graphite |
Graphite shaped parts, graphite blocks, graphite powder and graphite carbon additive |
1. More than 90% of the raw materials are from the listed resources |
50% |
|
| 2.8 |
Garbage and biogas produced by garbage fermentation |
Electricity, heat |
1. More than 80% of the raw materials are from the listed resources; |
100% |
|
| 2.9 |
Retired military propellant |
Nitrocellulose powder for coatings |
More than 90% of the raw materials are from the listed resources |
50% |
|
| 2.10 |
Waste asphalt concrete |
Recycled asphalt concrete |
1. More than 30% of the raw materials are from the listed resources; |
50% |
|
| 2.11 |
Bagasse |
Bagasse pulp, bagasse particleboard and various papers |
1. More than 70% of the raw materials are from the listed resources; |
50% |
|
| 2.12 |
Waste mineral oil |
Lubricating oil base oil, gasoline, diesel and other industrial oils |
1. More than 90% of the raw materials are from the listed resources; |
50% |
|
| 2.13 |
Cyclohexane oxidation waste liquid |
Epoxycyclohexane, n-pentanol, alcohol ether solvent |
1. More than 90% of the raw materials are from the listed resources; |
50% |
|
| 2.14 |
Wastewater treatment plant effluent, industrial wastewater (mine water), domestic sewage, leachate from garbage treatment plants |
Recycled water |
1. More than 100% of the raw materials are from the listed resources; |
50% |
|
| 2.15 |
Waste alcohol and wine bottom pot water, starch, vermicelli processing waste liquid, waste residue |
Steam, activated carbon, fumed silica, lactic acid, calcium lactate, biogas, feed, plant protein |
More than 80% of the raw materials are from the listed resources |
70% |
|
| 2.16 |
Oil-containing wastewater, organic wastewater, sludge produced after wastewater treatment, oil sludge (scum) produced during oil field extraction, including biogas produced by fermentation using the above resources |
Microbial protein, dried sludge, fuel, electricity, heat |
1. More than 90% of the raw materials are from the listed resources, among which, for the production of fuel using oil sludge (scum) produced during oil field extraction, more than 60% of the raw materials are from the listed resources. |
70% |
|
| 2.17 |
Coal tar, coke oven gas |
Diesel |
1. More than 95% of product raw materials come from the listed resources; |
50% |
|
| 2.18 |
Flue gas generated during the production process of coal-fired power plants and various industrial enterprises, high-sulfur natural gas |
Gypsum, sulfuric acid, ammonium sulfate, sulfur |
1. More than 95% of product raw materials come from the listed resources; |
50% |
|
| 2.19 |
Industrial waste gas |
High-purity carbon dioxide, industrial hydrogen, methane |
1. More than 95% of product raw materials come from the listed resources; |
70% |
|
| 2.20 |
Waste heat and waste pressure generated by industry |
Electricity, heat |
More than 100% of product raw materials come from the listed resources |
100% |
|
| III. Recycled Resources |
3.1 |
Waste batteries and their dismantled components |
Metals and nickel-cobalt-manganese hydroxide, lithium nickel-cobalt-manganese oxide, cobalt oxide |
1. More than 95% of product raw materials come from the listed resources; |
30% |
| 3.2 |
Waste developer (fixing) solution, waste film, waste photographic paper, waste photosensitive agents, and other waste photosensitive materials |
Silver |
1. More than 95% of product raw materials come from the listed resources; |
30% |
|
| 3.3 |
Waste motors, waste wires and cables, waste aluminum cans, scrapped automobiles, scrapped motorcycles, scrapped ships, waste electrical and electronic products, scrapped solar photovoltaic devices, waste light bulbs (tubes) and their dismantled components |
Metals and alloys produced through smelting and purification (excluding magnesium and iron compounds), steelmaking furnace materials |
1. More than 70% of the raw materials are from the listed resources; |
30% |
|
| 3.4 |
Waste catalysts, electrolytic waste, electroplating waste, waste circuit boards, dust ash, wet mud, smelting slag, circuit board etching waste liquid, tin foil ash |
Metals, alloys, and metal compounds produced through smelting and purification, cryolite |
1. More than 70% of the raw materials are from the listed resources; |
30% |
|
| 3.5 |
Rare earth product processing waste, waste rare earth products and dismantled components |
Rare earth metals and rare earth oxides |
1. More than 95% of product raw materials come from the listed resources; |
30% |
|
| 3.6 |
Waste plastics, waste polyvinyl chloride (PVC) products, waste aluminum-plastic (paper-aluminum, paper-plastic) composite paper packaging materials |
Gasoline, diesel, petroleum coke, carbon black, recycled pulp, aluminum powder, modified recycled special materials (for automobiles, motorcycles, home appliances, pipes), recycled polyester special materials for chemical fibers, recycled polyethylene terephthalate (PET) resin for bottles, and recycled plastic products |
1. More than 70% of the raw materials are from the listed resources; |
50% |
|
| 3.7 |
Waste paper, crop straw |
Pulp, straw pulp, and paper |
1. More than 70% of the raw materials are from the listed resources; |
50% |
|
| Data source: GF Securities Development Research Center |
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