The Impact of VAT Reduction on Aluminum Industry Chain and Arbitrage Strategy

 At the two sessions in 2019, Premier Li Keqiang made it clear in his report on the work of the government that greater tax cuts should be implemented, the reform of value-added tax should be deepened, the current 16% tax rate of manufacturing industry and other industries should be reduced to 13%, the current 10% tax rate of transportation industry and construction industry should be reduced to 9%, so as to ensure that the tax burden of major industries should be significantly reduced; the tax rate of the first class of 6% should be kept unchanged, but production should be adopted. Increasing tax credits and other supporting measures in the life service industry will ensure that tax burdens in all industries will only be reduced but not increased, and will continue to move towards the promotion of three-tier tax rates and two-tier tax system simplification.

VAT is the largest tax in China, accounting for about 1/3 of the national tax revenue, followed by income tax. According to the summary of the 2018 National Tax Work Conference, the three reforms of VAT implemented on May 1, 2018 have been carried out smoothly and orderly. The VAT tax rate has been reduced by about 270 billion yuan from May to December, and the manufacturing industry has been reduced by 35% from May to December. Tax will reach about 280 billion yuan, and according to the relevant estimates of securities firms, the value-added tax will be reduced by about 800 billion yuan, accounting for about 5.7% of the tax revenue in 2018.

Value-added tax is a turnover tax, which is borne by the purchaser and covers a wide range of areas. In theory, VAT tax burden will eventually be transferred to consumers. As consumers, every commodity we buy includes VAT. In addition, after tax reduction, the cost of enterprise procurement will decrease, which is conducive to improving profits. Accordingly, the products sold will also be reduced. Generally speaking, the reduction of VAT reduces the overall tax burden of the society, reduces the burden of enterprises and activates the market vitality, thus promoting economic development. The total tax base is also expanding. It is also a win-win policy in the downward cycle of the economy. We have sorted out the impact of VAT reduction on operating profit (cost) of different sectors of the aluminium industry as follows.