China levies consumption tax for coatings industry

Despite criticism from its paint and coatings industry, China’s government started charging consumption tax on coatings, effective from February 1, with the stated aim of reducing volatile organic compounds (VOCs).
Domestic coatings manufacturers and importing companies will have to pay the tax at 4%, according to a January 27 statement from China’s State Council – the country’s cabinet.
It explained that the policy would help protect the environment and improve air quality, with coatings whose VOC content is below 420g/lit being exempt.
The China National Coatings Industry Association (CNCIA) noted in a January 30 statement that the decision had sparked widespread concern: "We have received numerous phone calls from coating companies. They don’t know what actions they should take to adjust to the policy. They are afraid of the impact of consumption tax. They feel at a loss when thinking of their future.”
It added that foreign paint and coating companies will pay 4% consumption tax on imports into China. However, transport companies, packaging enterprises and retailers, as well as the coatings raw material producers, are exempt from paying the tax, although it is expected some of the tax will be passed on through higher prices. The CNCIA noted that the move will ultimately target major established coatings producers; the majority of Chinese coatings manufacturers are small, unregulated and dispersed – it will be difficult for tax authorities to collect from them.
The CNCIA also warned that the tax might force larger companies to abandon the manufacture of some products with higher operating costs. This could block or delay some acquisitions and consolidations, creating more room for small and higher polluting companies, thereby failing to cut the emission of VOCs, argued the CNCIA.