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New VAT Policy on selling power


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#1 odyd

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Posted 29 September 2013 - 07:10 AM

I need someone to help translate the meaning of this, it is very important.

http://guangfu.bjx.c...29/462789.shtml


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#2 sunnysky

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Posted 29 September 2013 - 07:20 AM

This is just the official announcement from the state tax dept about the 50% immediate refund on solar sales tax. It effectively cuts it by half and the time period is October 1, 2013 to December 31, 2015.


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#3 odyd

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Posted 29 September 2013 - 07:22 AM

Is this the same 17% tax being halved? That sounds pretty good.


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#4 explo

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Posted 29 September 2013 - 07:30 AM

This is the news I've been waiting for.

 

Here's what it means:

 

Standard VAT in China is 17%.

This is included in the current 1 RMB/kWh.

Thus plant owners only get 1/1.17 = 0.855 RMB/kWh revenue now for what they feed to the grid.

The 50% rebate means VAT will be 8.5% on PV generated electricity sales.

Thus plant owners will get 1/1.085 = 0.922 RBM/kWh revenue now for what they feed to the grid.

My estimated value of this policy is 0.15 $/W for PV plants.

This means if you before could make 0.15 $/W  profit on selling a plant, you'll now be able to do 0.30 $/W profit.

 

Stock prices of plant owners might appreciate on this, since this policy appreciates the value of their assets, but it might already have been expected by the market.

 

This together with 15-20 year loans at favorable interest rates will ignite the PV plant market in China.

 


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#5 explo

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Posted 29 September 2013 - 07:39 AM

This is just the official announcement from the state tax dept about the 50% immediate refund on solar sales tax. It effectively cuts it by half and the time period is October 1, 2013 to December 31, 2015.

 

What happens after December 31 2015? Will VAT rebate be reviewed or cancelled? This means that the rebate is only guaranteed for 10% of the plants life-time. This does not help banks and investors much when estimating the life-time cash flows. Or does it mean it will apply for the full life-time for all plants connected before December 31 2015?


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#6 odyd

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Posted 29 September 2013 - 07:46 AM

It appears that it is a bonus versus any other energy source. FiT is the payment to he owner, this is about selling the energy, two different things.

Revenue from grid sales is taxed at 8.5% instead of 17% 


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#7 explo

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Posted 29 September 2013 - 07:54 AM

My understand is that all revenue from PV generated electricity (including FiT) would get the rebate..?


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#8 odyd

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Posted 29 September 2013 - 08:01 AM

FiT is a payment "to" the owner for generation of energy.  Sales are taxed, there is two sources of income here. FiT and the actual sale. sale has the tax. Maybe I am confused.


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#9 sunnysky

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Posted 29 September 2013 - 08:13 AM

What happens after December 31 2015? Will VAT rebate be reviewed or cancelled? This means that the rebate is only guaranteed for 10% of the plants life-time. This does not help banks and investors much when estimating the life-time cash flows. Or does it mean it will apply for the full life-time for all plants connected before December 31 2015?

 

Looks like only for sales in that period. What happens after that could be anyone's guess. But given that wind power is being taxed right now at 8.5%, it is very likely that the policy will get renewed, at least at a rate on par with wind power at that time.


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#10 explo

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Posted 29 September 2013 - 08:28 AM

Thanks sunnysky.

Odyd, I think we can assume it will apply to at least the FiT revenue, since reports say it will increase IRR with 1-2 percent units.
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#11 odyd

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Posted 29 September 2013 - 08:35 AM

Again I am maybe confused but FiT is not a revenue, it is as subsidy. FiT payments would be taxed at the corporate level is my understanding and would not have the VAT on it. . 


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#12 JulyWebb

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Posted 29 September 2013 - 08:42 AM

Here's the same News from another source http://www.chinascop...post/28659.html


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#13 explo

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Posted 29 September 2013 - 09:00 AM

Thanks July. English makes it easier to read correctly.

Odyd, I'm still not sure what you mean. My read without going into the mechanics of how the FiT policy forces the purchase of power fed to the grid from PV plants at the FiT rate and how the grid companies are compensated for this is that revenue for PV plants will increase with 1.17 / 1.085 - 1 = 7.8%. Do you still agree with this or are you seeing no effect for the PV plant revenues?
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#14 joshchang

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Posted 29 September 2013 - 09:07 AM

Great news! 17% VAT tax will be halved to 8.5% so IRR on China's projects would be increased for at least 1-2%.


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#15 JulyWebb

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Posted 29 September 2013 - 09:09 AM

I copied this from an article when I was on a Chinese site the article was dated 9/29/2013 This was an article of news on top of the 50 Percent VAT

 

According to the National Development and Reform Commission issued "on the use of price leverage to promote the photovoltaic industry healthy development of the notice ", the state of the implementation of photovoltaic power plants subregional benchmark tariff policy. Among them, Ningxia, Qinghai, Xinjiang, Inner Mongolia, some of the light areas with better conditions as class Ⅰ resource area to enjoy 0.9 yuan price, Beijing, Tianjin and Northeast, Hebei, Yunnan, Sichuan and other regions as Class Ⅱ resource area is 0.95 yuan price , the rest of the resource area as Class Ⅲ enjoy 1.0 yuan price. Of distributed photovoltaic power generation projects, the implementation in accordance with the amount of electricity tariff subsidy policy, price subsidy standard is 0.42 yuan per kilowatt-hou|

 


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#16 odyd

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Posted 29 September 2013 - 09:18 AM


Odyd, I'm still not sure what you mean.

I am not sure what is confusing.  When you sell electricity from a solar plant you used to pay 17% VAT for those sales.  Now this is 8.5%, great.

I am not sure what FiT has to do with VAT? FiT is subsidy for generation of electricity using solar. You are saying that the company which gets FiT pays VAT on it, or at least this is what I think you are saying. VAT is revenue based tax. FiT is a subsidy it is tax free or this is my understanding. You may pay for it in the corporate tax, but I doubt it in China.

There are two sources of income for the solar plant, FiT payments plus sales.  


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#17 joshchang

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Posted 29 September 2013 - 09:24 AM

Fit revenue belongs to the revenue category that needs to pay vat tax in china. I although I do think china should make it vat tax free.
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#18 odyd

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Posted 29 September 2013 - 09:29 AM

I thought as the subsidy class it has the tax loophole? Ok, thanks for clarifying, but that means that FiT would be taxed at the regular rat of 17%? 


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#19 explo

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Posted 29 September 2013 - 09:29 AM

Odyd, FiT is simply the price (including VAT) that you sell PV generated electricity for. The revenue you recognize is thus based on that price net of the VAT and the amount of kWh you generate. Now VAT will be reduced while price remain same, thus revenue increase. This is my understanding at least.

I'm not sure what you mean by that they sell electricity (at market rate I assume you mean) and then get FiT as subsidy as two separate sources of income (like old programs, e.g. Golden Sun)? FiT is the only revenue source in my understanding, otherwise I need to revise up my revenue estimates.
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#20 odyd

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Posted 29 September 2013 - 09:34 AM

In the distributed format you do not sell anything, and you get the FiT. Josh, help understand this.  


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