The New VAT rate would decrease to 11%, which Would Not Influence Industry Much

By CnAgri2017-04-27 09:16:37 Print

The State Council recently decided that the VAT rate would decrease to three levels ( 17%, 11% and 6%) from four levels on July 1st, of which the level of 13% was canceled. The VAT rate for fertilizer and natural gas would decrease to 11% from 13%. BOABC’s analysts think a drop in VAT rate this time won’t play a great role to improve the situation of fertilizer profitability. The main reasons are as the followings:

First, fertilizer capacity has been seriously surplus and fertilizer prices always are decided by the downstream demand. A drop in VAT can cut down companies’ production costs to some extent, but it also would become a bargaining counter of buyers in the near future. During the spring-ploughing period this year, domestic fertilizer demand should be 34.5 million MT (nutrient) and the available resource on the market should be 39.59 million MT. An oversupply resulted in a drop in fertilizer price in busy season.

Second, compared to great fluctuations on fertilizer prices recently, a slight drop in VAT won’t bring great influence on price. Taking coal urea (average ex-factory price of 1,590 RMB/MT) for example, VAT output taxes are 183 RMB/MT at the rate of 13% and 159 RMB/MT at the rate of 11%. Suppose input taxes remain unchanged, VAT would decrease by 27 RMB/MT at the new rate, with the addition of a drop in input taxes, urea VAT would decrease by 20 RMB/MT. National average urea ex-factory price reached 1,654 RMB/MT in middle March, and had decreased by 64 RMB/MT by the end of this week.