Portuser,
can China input VAT be claimed back earlier via the filing of a return, and not wait for future collection of output vat (i.e. setoff only as you seem to suggest)?
The input VAT paid cannot be claimed back.
VAT is borne by final consumer. Before it produces goods for sale, the subsidiary is the final consumer of services provided by contractors.
VAT operates the same way as GST in Singapore.
(22-01-2016, 02:01 PM)portuser Wrote: [ -> ] (22-01-2016, 01:30 PM)CY09 Wrote: [ -> ]The newest factory has been in operation since oct 2014. So rightfully SFIG products from this factory should have been able to offset the factory's inputted VAT. Hence, this coming quarter results shouldn't other receivables fall a lot since the plant is producing about 120,000 tonnes of beverage?
Furthermore, some of these receivables were a result of PPE purchase prepayments. So rightfully, other receivables should start to decrease and PPE will increase with no cash loss/gain. If so, we will have to determine through this quarter's results to see if other receivables have fallen a lot which is corresponded by an increase in cash and PPE.
The newest operating factory you referred to is the Hubei factory costing around RMB 500m. The factory will have to sell RMB 500m worth of products to wipe off the trade receivables paid for the construction.
The on-going construction of another factory in Anhui entails payment of VAT which can only be offset later.
http://www2.deloitte.com/content/dam/Del...e-2015.pdf
Section 5.1 on page 17
“VAT incurred on the purchase or construction of fixed assets (excluding immovable property) may be credited against output VAT.”
This implies, immovable property such as land, factory building, warehouse etc are excluded.
Hence, for beverage process plant, basically, it is the processing and packaging equipment that are qualified as input credit.
Assuming the breakdown of a new plant is 60% equipment, for a RMB 500 million new plant, the VAT input credit amount is only
= RMB (500 x 60% x 17%) = RMB 51 million, which is relative small compared to the size of total operating receivable.
The total accumulated “VAT receivables” was RMB 121 million as at FY2014, against a total operating receivables of RMB 1,427 million.
Also, I don’t see why VAT (for purchase of equipment for factory A) could not be deducted against output VAT (for selling beverage produced by factory B) – if both factory A & B are owned by the same entity.
VAT amount payable (from product sales) = (VAT sales amount - VAT purchase amount) X 17%
Assuming VAT purchase amount = COGS. (Note I could be completely wrong on this, but I believe it is a close proxy)
For FY2014, VAT payable = RMB (2,819 - 1,691) million x 17% = RMB 192 million, a sizeable amount enough for offsetting cumulative “VAT receivables” of RMB121 million – but it didn’t happen ?
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(22-01-2016, 09:12 PM)Boon Wrote: [ -> ] (22-01-2016, 02:01 PM)portuser Wrote: [ -> ] (22-01-2016, 01:30 PM)CY09 Wrote: [ -> ]The newest factory has been in operation since oct 2014. So rightfully SFIG products from this factory should have been able to offset the factory's inputted VAT. Hence, this coming quarter results shouldn't other receivables fall a lot since the plant is producing about 120,000 tonnes of beverage?
Furthermore, some of these receivables were a result of PPE purchase prepayments. So rightfully, other receivables should start to decrease and PPE will increase with no cash loss/gain. If so, we will have to determine through this quarter's results to see if other receivables have fallen a lot which is corresponded by an increase in cash and PPE.
The newest operating factory you referred to is the Hubei factory costing around RMB 500m. The factory will have to sell RMB 500m worth of products to wipe off the trade receivables paid for the construction.
The on-going construction of another factory in Anhui entails payment of VAT which can only be offset later.
http://www2.deloitte.com/content/dam/Del...e-2015.pdf
Section 5.1 on page 17
“VAT incurred on the purchase or construction of fixed assets (excluding immovable property) may be credited against output VAT.”
This implies, immovable property such as land, factory building, warehouse etc are excluded.
Hence, for beverage process plant, basically, it is the processing and packaging equipment that are qualified as input credit.
Assuming the breakdown of a new plant is 60% equipment, for a RMB 500 million new plant, the VAT input credit amount is only
= RMB (500 x 60% x 17%) = RMB 51 million, which is relative small compared to the size of total operating receivable.
The total accumulated “VAT receivables” was RMB 121 million as at FY2014, against a total operating receivables of RMB 1,427 million.
Also, I don’t see why VAT (for purchase of equipment for factory A) could not be deducted against output VAT (for selling beverage produced by factory B) – if both factory A & B are owned by the same entity.
VAT amount payable (from product sales) = (VAT sales amount - VAT purchase amount) X 17%
Assuming VAT purchase amount = COGS. (Note I could be completely wrong on this, but I believe it is a close proxy)
For FY2014, VAT payable = RMB (2,819 - 1,691) million x 17% = RMB 192 million, a sizeable amount enough for offsetting cumulative “VAT receivables” of RMB121 million – but it didn’t happen ?
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"Also, I don’t see why VAT (for purchase of equipment for factory A) could not be deducted against output VAT (for selling beverage produced by factory B) – if both factory A & B are owned by the same entity."
To answer your question
Sino Grandness has incorporated a subsidiary for each of its factory so the Hubei plant is held separately from Anhui or Sichuan plant and they have separate accounts. Also, taxes are filed and paid to the provincial governments which operate independently from each other.
of course it didnt happen lah boon, the red flags are strong in this one, buy we shall not, avoid we shall.
-not vested-
Boon
VAT is not administered on group basis, but on individual companies of the group. The company set up to construct and own the Hubei factory is a separate VAT payer.
In the old days, group relief for company tax was not allowed in Singapore.
But now IRAS allows certain items of one company to be deducted from the income of the other company of the same group, subject to limitations.
(https://www.iras.gov.sg/irashome/Busines...up-Relief/)
But that is company tax in Singapore. I believe GST in Singapore is not determined on group basis.
The estimation of net VAT being RMB 192m in 2014 is not correct.
First, export sales (RMB 635m in 2014 out of RMB 2,819m overall sales) is VAT-exempt.
Second, COGS relate to production only. Input VAT was also levied on other expenses such as distribution (RMB 380m in 2014).
The input VAT paid in connection with export is "recovered" through the "export tax refund system". For Sino, refund is 15% of export value (page 81 of annual report); and as at end-2014, government owed Sino RMB 48m.
(An aside, input VAT is not levied on manpower cost [RMB 64m in 2014].)
(23-01-2016, 09:53 AM)portuser Wrote: [ -> ]Boon
VAT is not administered on group basis, but on individual companies of the group. The company set up to construct and own the Hubei factory is a separate VAT payer.
In the old days, group relief for company tax was not allowed in Singapore.
But now IRAS allows certain items of one company to be deducted from the income of the other company of the same group, subject to limitations.
(https://www.iras.gov.sg/irashome/Busines...up-Relief/)
But that is company tax in Singapore. I believe GST in Singapore is not determined on group basis.
The estimation of net VAT being RMB 192m in 2014 is not correct.
First, export sales (RMB 635m in 2014 out of RMB 2,819m overall sales) is VAT-exempt.
Second, COGS relate to production only. Input VAT was also levied on other expenses such as distribution (RMB 380m in 2014).
The input VAT paid in connection with export is "recovered" through the "export tax refund system". For Sino, refund is 15% of export value (page 81 of annual report); and as at end-2014, government owed Sino RMB 48m.
(An aside, input VAT is not levied on manpower cost [RMB 64m in 2014].)
Hi portuser,
I do understand that VAT is not administered on group basis in China.
Now let’s approach this from a different angle:
Cash used for “acquisition of PPE” from FY2009 to FY2014 was RMB 873 million.
Assuming my interpretation of the tax rule is correct:
“VAT incurred on the purchase or construction of fixed assets (excluding immovable property) may be credited against output VAT.”
Maximum deductible input credit = RMB (873 x 60% x 17%) = RMB 99 million
But the size of “VAT receivables” has been “ballooning” from RMB 18 million in FY2009 to RMB 121 million in FY2014.
If “VAT receivables” are all “capex related”, the maximum cumulative amount should only be at RMB 99 million (and not RMB 121 million) - even assuming no refund or offsetting against output VAT (for selling beverage) has taken place since 2009 – which is surely not the case !
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Boon
Other factors contributed to the high VAT receivables too.
In 2014, prepayments amounted to RMB 132m (RMB 55m for PPE and RMB 77m for supplies).
The [input] VAT incurred for the RMB 132m prepayment is not known. It was not RMB 22m (17% of RMB 132m) as buildings (which you have assumed to be 40% of total project cost) are VAT-exempt. Exemption also applies to purchase of agricultural products.
Expenses related to export also entail [input] VAT that is "recovered" from export tax refund. Processing of export tax refund takes time, as illustrated in italic below.
(The RMB 48m export tax refund that government owed Sino as at end-2014 corresponded to export sales of around RMB 320m (export tax refund rate being 15%). As export sales in 2014 amounted to RMB 635m, processing time was six months.)
(23-01-2016, 11:44 AM)portuser Wrote: [ -> ]Boon
Other factors contributed to the high VAT receivables too.
In 2014, prepayments amounted to RMB 132m (RMB 55m for PPE and RMB 77m for supplies).
The [input] VAT incurred for the RMB 132m prepayment is not known. It was not RMB 22m (17% of RMB 132m) as buildings (which you have assumed to be 40% of total project cost) are VAT-exempt. Exemption also applies to purchase of agricultural products.
Expenses related to export also entail [input] VAT that is "recovered" from export tax refund. Processing of export tax refund takes time, as illustrated in italic below.
(The RMB 48m export tax refund that government owed Sino as at end-2014 corresponded to export sales of around RMB 320m (export tax refund rate being 15%). As export sales in 2014 amounted to RMB 635m, processing time was six months.)
Hi portuser,
It looks to me that the RMB 55 million relates to the purchase of plant and machinery whereas the RMB 77 million relates to the purchase of raw material, packing materials and finished goods.
The RMB 55 m prepayment could either be deemed to be inclusive or exclusive of VAT:
Inclusive of VAT:
55 = 47 (100%) + 8 (17%), meaning it carries an input credit of RMB 8 million when expensed – but this 8 million could not have been included in the “VAT receivables” – otherwise it would have been “double counting”.
Exclusive of VAT:
This means RMB 55 m x 0.17 = 9 m of VAT is yet to be paid – hence it could not have been included in the “VAT receivables” either.
So, what “other factors” could have contributed to the high VAT receivables if prepayments could not possibly have?
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From page 63 of AR2014:
Value-added tax
The Group’s sales of goods in the PRC are subjected to Value-added tax (“VAT”) at the applicable tax rate of 17% for PRC domestic sales. Input VAT on purchases can be deducted from output VAT. The net amount of VAT recoverable from, or payable to, the tax authority is included as part of “other receivable” or “other payable” in the statement of financial position. The Group’s export sales are not subject to VAT.
Revenue, expenses and assets are recognised net of the amount of VAT except:
- Where the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
- Receivables and payables that are stated with the amount of VAT included.
The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or
payables in the statement of financial position.
From page 81 of AR2014:
The advances which are unsecured, interest-free and repayable on demand are mainly made to:
- contractor relates to the construction of newly acquired land and existing factory and warehouse;
- suppliers of property, plant and equipment relate to the purchase of plant and machinery;
- suppliers relate to the purchase of raw material, packing materials and finished goods; and
- employees pertaining to business purpose.
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Very interesting discussion on VAT.
By the way what is the impact of Vat on credit sales?