Starting April 1, 2026, China will introduce a major revision of its VAT export rebate policy, the mechanism that allows exporters to recover value-added tax paid during the production process when goods are sold abroad. Historically, this system has enabled Chinese exporters to reclaim part or all of the VAT paid along the supply chain, effectively lowering production costs and supporting the global price competitiveness of Chinese products.
Under the new reform, announced on January 8, 2026 by the Ministry of Finance and the State Taxation Administration, VAT rebates will be reduced or eliminated for hundreds of industrial products, affecting several key sectors. Among the most impacted industries are solar photovoltaics, batteries, chemicals and plastics, glass, ceramics, metallurgical products, and e-cigarette related goods.
The reform consists mainly of two types of measures. First, for several product categories the VAT export rebate will be completely abolished starting April 1, 2026. This applies, for example, to the entire photovoltaic supply chain, including silicon ingots and wafers, solar cells, and solar modules. In addition, numerous chemical and plastic products, a wide range of glass and ceramic construction materials, and many steel and metallurgical products will also lose the rebate entirely. For these goods, rebate rates previously ranging between 3% and 13% will drop to zero.
Second, some sectors will experience a gradual reduction of the rebate rather than an immediate elimination. This is the case for certain battery products. For primary and secondary batteries, the rebate rate will be reduced from 9% to 6% between April and December 2026 and will then be completely removed starting January 1, 2027. By contrast, several key battery materials—such as spherical graphite and lithium-based chemical compounds—will see the rebate abolished immediately from April 2026.
Products subject to consumption taxes, such as those related to electronic cigarettes, will follow a slightly different treatment. Although the VAT export rebate will be removed, exporters will still be able to claim a refund of the consumption tax paid earlier in the production chain.
The reform reflects several broader economic and industrial policy objectives of the Chinese government. One important goal is to reduce the environmental impact and high energy intensity of certain industries, encouraging more efficient use of resources. Another objective is to address issues of industrial overcapacity and price-based competition, which in some sectors had been reinforced by the availability of generous VAT rebates. By removing this fiscal advantage, policymakers aim to encourage companies to compete more on innovation, product quality, and higher value-added production.
From an economic perspective, the most immediate effect for Chinese exporters will be an increase in the effective tax burden on exports. VAT that was previously refunded will now become a permanent cost, reducing profit margins—particularly for firms that relied heavily on low-price strategies to compete internationally. Over time, the reform may lead to a restructuring of certain industries, favoring more efficient and technologically advanced producers.
International importers, including many European companies, may also feel the effects of the policy change. Chinese suppliers are likely to pass part of the additional tax cost onto export prices, which could lead to higher procurement costs for various products, including photovoltaic components and industrial materials.
In the short term, the reform may trigger a temporary surge in exports before the policy takes effect, as companies rush to ship goods before March 31, 2026 in order to benefit from the existing rebate rates.
Operationally, the key date for determining whether the old or new rebate rates apply will be the export declaration date recorded in the customs documentation. Companies therefore need to carefully plan shipment schedules, review customs classifications, and update their accounting and ERP systems to reflect the new rebate structure.
More broadly, the reform may prompt many international businesses to reassess their supply chain and production strategies. Possible responses include diversifying manufacturing to other Asian countries, shifting toward higher-value products, or increasing focus on China's domestic market, where VAT remains recoverable throughout the internal supply chain.
At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us at info@phcadvisory.com.
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