China's economy may be slowing down, but the country is not ready to give in just yet. Next month, the Chinese government is planning to implement its revamped value-added tax (VAT) that would replace business taxes and expand three crucial sectors: real estate, finance, and consumer services. It has already been on a trial run last 2012, although this is the first time that the country is fully implementing it.

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According to the VAT blueprint presented by China's Ministry of Finance, an 11 percent tax will be levied on property and construction companies, while a six percent rate will be imposed on financial and consumer service industries. It aims to reduce double taxation on companies, thereby decreasing their overall tax burdens. If fully implemented in the entire country, the VAT reform could lower taxes as a whole by $144 billion, stimulating consumer spending and increasing growth.

This is not the first time that China has tried to increase consumer spending. Just recently, the Ministry of Finance also slashed tariffs by 50 percent for 14 categories of products, including shoes, diapers, and cosmetics. It was intended to get Chinese customers to spend more and at the same time give them access to more international brands and products.

But China's financial sector will surely suffer in the new tax structure, as it would likely raise the net tax burden of Chinese financial firms. At present, the sector enjoys a five percent corporate tax. Many believe that the new VAT will cost the government $161.2 billion in tax revenues, but it is willing to take a hit in short-term tax revenue if it meant to achieve its goal of better economy and growth in the long term.

Similarly, the new VAT would also affect firms in the United States taking delivery of exported Chinese goods, such as steel. The new VAT will considerably increase what US buyers pay for metals from China and likely from nearby markets trying to compete with Chinese steel.

According to a metals purchaser who works with suppliers in China, metals such as cold-rolled steel would receive an import tax of three to six percent, depending on the thickness. The VAT on these goods would be 17 percent, of which nine percent gets refunded when it is exported, creating a net VAT of eight percent and a net total tax of 11 to 14 percent.The VAT reform may be good for China, but it would certainly take its toll on steel and metal importers as some of the biggest commodity banks have been slashing their price forecasts for stainless steel and other metals, like nickel.

TagsChina's economy slowing down, revamped value-added tax China, China's Ministry of Finance, reduce double taxation, VAT reform, China's new tax structure, China metals, new VAT rules in China, Amur Minerals