China assesses a Value Added Tax (VAT) on nearly all of its products. This tax is typically 17%. Up until July 1, 2007, China would rebate some or all of its Value Added Tax (VAT) on nearly all export products. China did this to encourage the production of products for export.

However, on July 1, China cancelled its Value Added Tax (VAT) rebates on 500+ products, reduced its VAT rebates on another 2,000+ products and exempted VAT charges on about 10 products. These changes mean the sourcing costs on many products from China have just gone up by as much as 17%.

Very briefly, the Chinese government is using VAT rebates to discourage manufacturing of low-end, high energy consumption, high polluting goods and to encourage the export of high value added, high end goods. Certain high tech products, bio-medical products and highly processed agricultural products actually had their rebates increased.

As one might expect, the Big Four Accounting Firms have been all over this issue. Click here [pdf] for PriceWaterhouse's take, here [pdf] for Ernst & Young, here [pdf] for KPMG, and here [pdf] for Deloitte.

The Western media has been surprisingly quiet on this whole thing and corporate America has also said very little. Is it because Western companies will be so little affected by the changes? Is it because the changes came so quickly and with so little warning Western companies have had too little time to react?

The good folks over at Technomic Asia (a top flight China consulting firm with whom my firm has worked on a number of China projects) are conducting a short survey to try to get a better handle on the impact these China VAT changes will have on companies that source product from China. I too am curious and so I am asking those involved in manufacturing product in or sourcing product from China to click here and fill out the brief (only 17 questions) survey.

We will publish the results here as soon as we get them.