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China Suspends "Actual Payment" of Processing Trade Customs Duty Deposit and Further Raises VAT Rebate Rates

To alleviate the credit crunch of processing trade enterprises and proactively counter the impact of the financial crisis, the Ministry of Commerce and the General Administration of Customs jointly issued Announcement No.97 [2008] on 21 November under which the "actual payment" of customs duty deposit will be suspended. The new policy will affect a total of 2,125 10-digit tariff items in the light industry and textiles category under the restricted export and restricted import categories, representing 95% of the restricted processing trade items listed in the annex of Announcement No. 44 [2007] issued by the two departments earlier. Category A and B processing trade enterprises will temporarily switch from "actual payment" to "nominal payment" of customs duty deposit, whereas Category C enterprises will continue with "actual payment". The new policy will take effect from 1 December 2008.

Moreover, the Ministry of Finance issued a notice on 17 November on the increase of VAT rebate rates for certain exports such as labour-intensive items. The increases include: from 5% to 9% for certain rubber products; from 5% to 11% for certain moulds and glassware; from 11% to 13% for certain travel goods and handbags, footwear, headgear, umbrellas, furniture, bedding, lighting, and watches and clocks; and from 9% to 11%, from 11% to 13% and from 13% to 14% respectively for certain machinery and electrical products. The new rates will take effect from 1 December 2008.