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According to a notice issued by the Chinese Ministry of Finance (MOF) in January 2015, a 4% consumption tax would be applied to batteries and coatings that meet certain criteria. On Dec 29th 2015, the State Administration of Taxation issued another notice, stating that the grace period for the battery consumption tax was over, meaning taxation on batteries and coatings went into full effect.
During the intervening 11 months, implementation of taxation on coatings has been fiercely debated. The coating industry has asserted that the requirements remain too ambiguous and the rules too hard to follow. For example, printing paste is one such controversial area that industry is reluctant to pay tax on. The tax authority claimed that printing paste had the characteristics of coatings and as long as the VOC of printing paste exceeded the concentration limit, then the product was taxable. However, the industry’s opinion is that printing paste is more like an adhesive and is mainly used during the printing of textiles; therefore it should not be taxed. At present, there are 19 enterprises manufacturing printing paste in Quzhou City that haven’t paid any tax on their products.
More controversies occurred around the concentration limit of VOCs. According to the notices of MOF and the tax authority, the consumption tax was imposed on coatings that released more than 420 g/L of volatile organic compounds (VOCs) at worksites. It is difficult to determine whether a coating exceeds this concentration limit or not because the concentration of VOCs released differ with temperature, humidity and other worksite variables. For one coating, the VOCs released can be above the concentration limit in summer and below it in winter.
What’s more, the test facilities were only responsible for the test results of the product samples provided by the enterprises. Tax authorities have accused industry of providing samples which are often different from the actual products sold on the market. On the other hand industry argues that they usually have many lines of products and it would be too costly for them to have all the products tested.
Tax official’s lack of chemical expertise is also causing major problems. There are numerous coating products on the market with a range of complicated formulations making classification and determination of taxation scope and criteria difficult.
Despite the fact that the consumption tax on coatings has been implemented for almost a year, there are still many controversies and ambiguities involved in the practical implementation of the regulation. The tax authority should take the feedbacks from industry for consideration and create an environment that fosters mutual benefit between the industry, the competent authorities and most important, the environment.
